UNIT 6 LEDGER

Structure
6.0 Objectives
6.1 ' Introduction
6.2 What is Ledger?
6.3 Form of a Ledger Account
6.4 Posting into Ledger
6.5 Posting a Compound Journal Entry
6.6 Balancing Ledger Accounts
6.7 Significance bf Balance
6.8 Trial Balance
6.9 Posting an Opening Entry
6.10 Let Us Sum Up
6.11 Key Words
6.12 Some Useful Books
6.13 Answers to Check Your Progress
6.14 Terminal Questions/Exercises

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6.0 OBJECTIVES
After studying the unit, you should be able to:
post the journal entries in the respective ledger accounts
balance a ledger account and explain the significance of balance in an account
prepare a trial balance to test the arithmetical accuracy of recording in the
books of account
post an opening entry

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6.1 INTRODUCTION
You learnt that a, business transactions are recorded in the books of account in
two stages: (1) Journalising, and (2) Posting into Ledger. You have learnt the first
stage of journalising various transactions in Unit 5. In this unit you will learn
about the second stage i.e., recording in the ledger. This involves posting journal
entries into various accounts in the ledger, balancing the accounts periodically, and
preparing a Trial Balance to check the arithmetical accuracy of all accounting
entries.

6.2 WHAT IS LEDGER?

Ledger is a book which contains all accounts affected by various transactions in a
business. As you have learnt earlier (in Unit 5 ) , an account is a classified and
summarised record of all transactions relating to a particular person or an item.
Hence, ledger can be termed as a classified and sumrnarised record of business
transactions relating to all personal, real and fiominal accounts.
Books of Account -I All transactions which are first recorded in the journal, must invariably be posted
into the concerned accounts in the ledger. This is necessary because Journal is just
a chronological record of transactions, identifying the accounts to be debited and
credited. It does not help us to know the net effect of various transactions
affecting a particular account. This can only be achieved by recording the effect of
all transactions on each account at one place. Let us illustrate this. Suppose,
Mohan Brothers have been selling goods on credit to Suresh. Suresh i i allowed to
make part payments and make further purchases even before the old balance is
cleared. No doubt, all transactions relating to the goods sold to him and the
amounts received from him would be duly recorded in the journal (or its
sub-divisions). But the journal, by itself, will not be in a position to readily
provide information as to whether Suresh, at a given point of time, owes them any
money and if so, how much. This is because the entries for transactions with him
have been made at different places in the journal and you will have to go through
all entries to obtain the required information. If however, all sales made t o Suresh
and the amounts received from him are shown at one place, say, in Suresh's
Account in the ledger, the required information would be readily available. This is
true of all accounts, be they personal accounts, real accounts or nominal accounts.
Ledger, thus is a book where all accounts are maintained and into which all
journal entries are posted. As all transactions must ultimately be recorded in the
respective accounts, the ledger is called the 'Book of Final Entry'. It is also called
the 'Principal Book of Accounts'. In fact transactions can even be directly
recorded into various ledger accounts. But, normally, this is not done because in
that case we will not have any datewise record of all transactions and the details
thereof. Such record is necessary for future reference.
To sum up (i) the ledger contains all the personal, real and nominal accounts,
(ii) the ledger is a permanent, ultimate and up-to-date record of all transactions,
and (iii) the ledger provides a means of easy and ready reference.
The ledger is a bound volume with the pages numbered consecutively. Alphabetical
index is also shown at the beginning so that the page in which an account appears
can be easily ascertained. In certain modern business, loose-leaf ledgers are
maintained, instead of one bound volume. ~ a n k smaintain loose-leaf ledgers for
customer's deposit accounts.

6.3 FORM OF A LEDGER ACCOUNT

As stated earlier, an account is the summarised record of all the transactions
relating to a particular person or an' item. The form of an account is given below:

NAME OF THE ACCOUNT

Dr. Cr .
Folio Aniount

Rs.
' You are already familiar with 'T' form of an account. A page is folded vertically Ledger
in the middle to make it into two halves. Actually, folding is not necessary as
usually pre-printed books are available. Sometimes, two pages are taken together
as a unit. In that case the entire page on the left hand side is considered as the
debit side and the other page on the right hand side is treated as the credit side.
The columns in ledger account are very much similar to those in journal. In the
journal you have two amount columns because the dual aspect of each transaction
has to be analysed and presented side by side. In the ledger account the first three
columns of the journal, viz., date, particulars and folio, appear on both the debit
and the credit side and so also the amount column. However, the column meant
for entering the page number in ledger is mefely called -'folio', whereas in the
journal it is called 'ledger folio'. It is important to note this similarity at the
outset, as it would make ledger posting an easy task.
Let us look at the form of ledger account once again. In the middle of the top of
the account the 'Name of the Account' is given. It will be written as 'Shyam's
Account', or 'Furniture Account' or 'Rent Account', as the case may be. You also
find that Dr. and Cr. appear at the two extreme ends of the top line of the
account. The left hand side is designated as debit side and is indicated by writing
'Dr.' on the left hand top corner. Similarly, 'Cr.' is written on the right hand top
corner to indicate the credit side. When an account is to be debited, the entry is
made on the debit side and when it is ,to be credited, the entry is made on the
c1edit side.

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6.4 POSTING INTO LEDGER
The journal entries form the basis for recording in the ledger accounts, and the
process of entering transaction in the ledger is called 'Posting'. When a journal
entry has to be posted in the concerned ledger accounts, the following procedure is
adopted.
1 Every journal entry will have to be posted into all those accounts which have
been debited and credited in the journal entry. For example, for cash sales,
Cash Account is debited and Sales Account is credited in the journal. When
this entry is posted in the ledger, it must be posted in Cash Account as well as
in Sales Account.
2 Posting will be made on the debit side of the account which has been debited
in the journal, and the credit side of the account which has been credited in
the journal. In case of above example of the cash sales, posting will be made
on the debit side of Cash Account, as it has been debited in journal and the
credit side of Sales Account, as it had been credited in the journal.
3 Whether the posting is made on the debit side or the credit side, first of all the
date of the transaction (as given in the journal) will be entered in the date
column. The method of recording the date in the ledger account is the same as
in journal.
4 While posting on the debit sick of an account, in the particulars column we
shall write the name of the account which had been credited in the journal and
add the word 'To' before the name. Similarly while posting on the credit side
of an account, we shall write the name of the account which has been debited
in the-journal and add the word 'By' before the name. In case of the above
example, we shall write 'To Sales A/c' in particulars column on the debit side
of Cash Account; and 'By Cash A/c' in particulars column on the credit side
of the Sales Account.
5 The journal entries contain 'narration'. But it is not required in the ledger
accounts. Similarly, there is no need to draw a line between the two entries in
an account as is done in the journal. Note that posting in the ledger account is
considered complete only when both the debit and the credit aspects of all
journal entries have been posted.
B O O ~ Sof ~ccount-l 6 In the folio column, we shall mention the page number of the journal where
the concerned journal entry appears. A t the same time, the page number of
the ledger accounts will be entered in the 'L.F.' column in the journal so as t o
complete the cross reference.
7 The amount involved in the journal entry shall be entered in amount columns
of both the accounts.
Now let us take a transaction, journalise it, and then show how the posting is
done in the ledger.

Illustration 1
Purchased machinery for cash, Rs. 50,000 on April 4, 1987. ThiS transaction will
appear in the journal and the ledger as under:

JOURNAL
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Date Particulars L.F. Dr. Cr.
Amount Amount

1 987 Rs. Rs .
APT. 4 Machinery A/c Dr. 50,000
To Cash A/c 50,000
(Being machinery purchased)

LEDGER
Machinery Account %

Dr. Cr.

Date Particulers F Amount

1987 Rs.
Apr. 4 To Cash A/c 50,000

Cash Account
Dr. Cr.

Date Particulars Date Particulars F Amount

1987 Rs.
Apr. 4 By Machinery A/c 50,000

Now we take a few more transactions and illustrate further the ledger posting
aspkct of the transactions, from the journal entries.

Illustration 2
Journalise the following transactions and post them into the ledger.
1987
April 2 Cash Sales
" 2 Paid Salaries
" 6 Sold goods to Pankaj
" lQ Cash purchases
" 13 Paid for stationery
"
18 Goods taken by proprietor for personal use
" 23 Bought goods from Manoj
" 25 Received from Pankaj on account
" 27 Sold goods for cash
" 30 Received interest on investments
 Ledger
Solution:

JOURNAL

.
Date

1987
T Particulars Dr.
Amount

Rs.
Cr
Amount

April 2 Cash Account Dr. 15,000

T o Sales Account

r----
(Being cash sales)

Salaries Account Dr.

T o Cash Account
(Being salaries paid)
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Pankaj's Account Dr.
To Sales A/c
(Being goods sold to Pankaj on credit)
a

To Cash Account
(Being cash purchase)

T o Cash Account
(Being stationery purchasM)

Drawings Accou'nt
T o Purchases Account
(Being goods taken for personal use)

Purchases Account
T o Manoj's Account
(Being goods purchased from
Manoj on credit)

Cash Account Dr.

T o Pankaj's Account
I (Being the amount received)
1
Cash Account Dr.
To Sales Account
(Being cash sales)

Cash Account Dr.

T o Interest Account
(Being interest received on
investments)

LEDGER
Cash Account
Dr.

Date Partlculars F Amount Date Particulars F Amount

t

1987 Rs. 1987 Rs .

Apr. 2 To Sales A/c 15,000 Apr. 2 By Salaries A/c 6,000
" 25 To Pankaj's A/c 4,000 " 10 By Purchases A/c 5,000
" 27 To Sales A/c 4.000 " 13 By Sataionery A/c 100
" 30 To Interest A/c 1,400

Sales Account

1987 Rs.
Apr. 2 By Cash A/c , 15,000
" 6 By Pankaj's A/c 10,000
" 27 By Cash A/c 4,000
Books of Account-1 Salaries Account

1987 Rs. .
Apr. 2 To Cash A/c 6,000
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1987 Rs. 1987 Rs.

Apr. 6 To Sales A/c 10,000 Apr. 25 By Cash A/c 49'300

Purchases Account

1987 Rs. 1987 Rs.

Apr. 10 To Cash A/c 5,000 Apr. 18 By Drawings A/c . 1,000
" 23 To Manoj's A/c 13,000

Stationery Account
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1987 Rs.
Apr. 13 To Cash A/c 100

Drawlngs Account

Manoj's Account

1987
Apr. 23 By Purchases A/c

Interest Account

Rs.
1.400

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6.5 POSTING A COMPOUND JOURNAL ENTRY

Normally we post a journal entry into two accounts, on the debit side of one
account and the credit side of the other account. This is because most journal
entries have only two accounts. But it is not so in case of a compound journal
entry which involves more than two accounts. A compound entry will be posted on
the debit side of two or more accounts and the credit side of one account, or on
the debit side of one account and credit side of two or more accounts. This will
depend upon the number of accounts that have been debited and credited in the
journal entry. Take, for example, a journal n t ~ yfor the following transactions:
On May 31, 1987 Mohan, a customer, paid cash Rs. 950 in settlement of his
account of Rs. 1,000.
The journal entry for this transaction will be:

1987
Rs. Rs.
Cash.A/c Dr. 950
May 31
Discount Allowed A/c Dr. 50
T o Mohan 1
(Being amount received in full
1 settlement)
 In this journal entry two accounts have been debited and one account has been
credited. It will be posted on the debit side of both Cash Account and Discount
Allowed Accgunt, and the credit side of Mohan's Account. In the Particulars
column of the debit side of Cash Account and Discount Allowed Account we shall
write 'To Mohan'. On the credit side of Mohan's Account, in Particulars column
we shall write 'By Cash A/c', and then in the next line 'By Discount Allowed A/c'
and show the respective amounts in the Amount column. See the posting of this
compound journal entry as given below:

Dr. Cash Account Cr,

1987
May 31 To Mohap 950

Mscount .Allowed Account

1987 Rs.
May 31 To Mohan 50

Mohnn's Account

1987 I
klay 31
r* 31
By Cash A/c
By Discount
Allowed A/c
I 1 950

Alternatively, in Mohan's Account we can simply write 'By Sundries' in Particulars

column and. show full amount in the Amount column.
The above example should help you to also correctly post a compound journal
entry where one account has been debited and two 'or more accounts have been
credited, or where many accounts have been debited and many accounts have been
credited.

I Check Your Progress-A

1 What is Ledger?

2 What is posting?

3 State whether each of the following statements is True or False.

a) Posting is done in the journal,
b) Posting- will be made on the debit side of an account which had been
debited in the journal.
c) The word 'To' is used with the name of an account while making posting
'
on the credit side of an account.
d) No narration is written while posting into ledger accounts.
e) Every journal entry will be posted only into those accounts which have
been debited in the journal.
f) Compound journal entry is posted to more than two accounts.
Books of Account-1
6.6 BALANCING LEDGER ACCOUNTS
In the above illustration you have seen that many transactions are likely to involve
a particular account, and there are a number of entries on both sides of an
account. At the end of a day, a week or a month, it would be necessary to know
the net effect of various transactions entered in an account. For example, it would
be important and useful to know as to what is still due from a customer. We can
get this information by working out the difference between the total of debit
entries and the total of credit entries in customer's account. This process is termed
as 'balancing of an account'. For example, look at the Pankaj's Account in
Illustration 2. You find that there are two transactions, one on each side. Pankaj
has been debited with RS. 10,000 for credit sales to him, and credited by Rs. 4,000
for the amount paid by him. The difference between the amount debited and the
amount credited is Rs. 6,000. This amount of Rs. 6,000 is the 'balance' in his
account which he still owes to the business. Where the debit side total is more than
the credit side total, as in this case, it is called a debit balance. It is shown, in
particulars column, on the credit side by writing 'By Balance c/d' and totals on
both sides made equal. After totalling the two sides of the account, the same
balance is shown on the debit side, on the next date, by writing 'To Balance b/d'
in particulars column. The term c/d is an abbreviation for carried down and b/dlis
for brought down. Such balancing of accounts is done periodically, say, daily (as
in the case of cash account), weekly, monthly or at any other convenient time, as
and when needed.
Let us see the balancing of Pankaj's Account.
Pankaj's Account
Dr. Cr.
Date Particulars F Amount Date Particulars F Amount

1987 Rs. 1987 Rs.

Apr. 6 To Sales A/c 10,000 Apr. 25 By Cash A/c 4,000
" 30 By Balance c/d 6,000

10,000 10,000

May 1 To Balance b/d 6,000

In another situation, the total of the credit side may be more than the total of the
debit side. In that case it will be called credit balance. It will be shown on the
debit side by writing 'To Balance c/d' in particulars column and the totals of the
two sides made equal. After totalling the two sides of the accounts the same
balance will be shown on the credit side on the next date, by writing 'By Balance
b/d' in particulars column.
Let us now explain the procedure of balancing an account stepwise.
1 Total both the amount columns (debit and credit) and ascertain the difference
in two totals (use a separate rough sheet for this purpose). If there is no
difference between the totals of the two sides, it means there is nil balance on
this account. This means, the account is closed. However, if there is some
difference in the two totals, such difference is called the 'balance'. If the debit
side total is more than the credit side total (as in Pankaj's Account), the
difference is called debit balance. If, on the other hand, the total of the items
o n the.credit side is greater than the total of the debit side, the difference is
' called credit balance.
2 Put the difference between the two sides on the side showing a smaller total.
3 Enter the date on which balancing is being done, in the date column. Note
that balancing is not a transaction, as this does not involve any transfer
between two accounts.
4 If the balance is entered on the debit side, themwrite in particulars column 'To
Balance c/d'. In case, the balance is entered on the credit side, write in
particulars column 'By Balance c/d' (c/d stands for carried down).
5 Now total both the amount columns. There might be more entries on one side, Ledger
as compared to the other. Even then, the totals must be written on the same
horizontal line. Draw one line across both the amount columns, on the same
horizontal line. Put the totals on both the sides, which will now be identical
aild then draw line immediately beneath the totals (see Pankaj's Account on
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. the previous page).
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6 The closing balance (which was carried down) has now to be brought down on
the side which was showing the bigger total. In other words, at the beginning
o f the next period, the debit balance is shown on the debit side and credit
balance on the credit side of the account. It is called opening balance. The
balance brought down is usually given thk date following the balance date.
After entering the date in the date column, if the balance brought down is on
the debit side, write 'To ~ a l a n d eb/d' in particulars column. Similarly, if the
balance brought down is on the credit side, write 'By Balance b/d' (b/d stands
for brought down), particulars column. Suppose an account was balanced on
June 30, and the closing balance was entered on the credit side as 'By Balance
'.
c/d On July 1, this balance would be entered on the debit side as 'To
Balance b/d' below the total.
You have now understood the method of balancing an account. Usually a page
is allotted to an account and all transactions affecting that account are posted
there. Sometimes, when transactions are numerous,more number of pages can
be set apart for such an account. When the balance is proposed to be brought
clown on the same page, then the abbreviations, c/d and b/d are used.
However, when there is not much space in the same page, and the balance has
t o be carried forward either to the next page, or some other page, the
abbreviations 'c/f' (carried forward) and 'b/f' (brought forward) are used in
place of 'c/d' and 'b/d'. The page numbers are entered in the Folio colunlns
to show as to where the balance has been carried forward and from where it
has been brought forward.
Sometimes, there may be no difference between the totals of the two sides. In
such cases, there will be no closing balance and no opening balance. However,
to signify that the balancing has been done, totals are entered on both the
sides and the account is closed.
- @w let us take up comprehensive illustration and reinforce what you have
learnti0 fai regarding journalising, posting into ledger and balancing the
accounts.
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Illustration 3
Journalise the following transactions, post them into ledger and balance the
accounts:

1987 Rs.
March Ashok commenced business with cash 1,20,000
99
Purchased furniture for cash 24,000
I ~rchasedgoods from Vijay 36,000
Sold goods . 4,800 '

Paid rent 3,000

Sold goods to Arun 9,000
Arun returned goods 450
Bought goods from Dinesh 24,000
Returned goods to Dinesh 600
Paid for advertising 1,500
Paid for stationery 300
Drew for personal use 2,400
Cash Sales 9,600
Received from Arun 2,550 *

Paid to Vijay 12,000

Sold goods to Sanjay 15,000
Cash sales 6,000
Paid salaries 6,000
Paid municipal taxes 1,200
Paid printing charges . 1,500
~ o o k of
s ~ccount--I Solution:
JOURNAL
Date 1 Particulars I L.F 1 Dr. Cr.

1987
I Amount

Rs.
Amount

Rs.
Mar. 1 Cash Account Dr 1,20,000
T o Capital Account
(being Capital brought in)

" 2
T o Cash Account
(Being furniture purchased)
I
"2

t
Purchases Account
T o Vijay's Account
(Being credit purchases)
Dr.

" 4
I.T o Sales Account
(Being cash sales)

Rent Account
T o Cash Account
(Being rent paid)

" 6 Arun's Account Dr.

. T o Sales Account
(Being credit sales)

" 7 Inwards Account Dr.

T o Arun's Account
(Being goods returned by Arun)

Purchases Account
T o Dinesh's Account
(Being credit purchases)

T o Returns Outwards Account

(Being goods returned t o Dinesh)

" 14 Advertising Account Dr.

T o Cash Account
(Being the amount paid for
advertising)

" I5
t D
Stationary Account
T o Cash Account I
I
(Being the payment for
stationery)
I
I
Drawings Account Dr.
T o Cash Account
(Being cash withdrawn for
ersonal use)

E
Cash Account
T o Sales Account
Being cash sales)

t
Cash Account
T b Arun's Account
Being the amount received from

2 3
T o Cash Account
Being the amount paid to Vijay)

T o Sales Account
f
i Contd.
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" 28 Cash Account Dr. 6,000
To Sales Account 6,000
(Being salaries paid)

" 31 Salaries Account Dr. 6,000

To Cash Account 6,000
(Being salaries paid)

" 31 Municipal Taxes Account Dr. 1,200

To Cash Account 1,200
(Being municipal taxes paid)

" 31 Printing Charges Account Dr. 1,500

To Cash Account 1,500
(Being Printing charges paid)

LEDGER
Cash Account
Dr. Cr.

Date Partlcul.m Amount Date Partlculam Amount

1987 Rs. 1987 Rs.

Mar. 1 To Capital A/c 1,20,000 Mar. 2 By Furniture A/c 24,000
" 3 ToSalesA/c 4,800 " 4 By RentA/c 3,000
" 20 ToSalesA/c 9,600 " 14 By AdvertisingA/c 1,500
" 21 ToArun 2,550 " 15 By Stationery A/c 300
" 28 Tosales A/c 6,000 " 17 By DrawingsA/c 2,400
" 23 By Vijay 12,000
" 31 By Salaries A/c 6,000
" 31 By MunicipalTaxA/c 1,200
" 31 By Printing Charges A/c 1.500
" 31 By Balancec/d 91,050
k.
1.42.950 1,42,950

Apr. 1 ToBalance b/d 91.050

Sales Account

I' 1987
To Balance c/d Mar. '83: By Cash A/c
Rs.

BY-
" 20 , By Cash A/c
" 24 By Sanjay
" 28 By Cash A/c

Apr. 1 By Balance b/d 44,400

,$

.$* **-&! Arun's Account

I

Rs. 1987
F" -. 6 ToSalesA/c 9,000 Mar. 7
2,550
&$* " 21 By CashA/c
5~
a

p . . " 31 ByBalancec/d 6.000

- ---
To Balance b/d
Books of Account-I Returns Inwards Account
1987 Rs. 1987 Rs.
Mar. 7 To Arun 450 Mar. 31 By Balance c/d 450

Apr. 1 ToBalance b/d 450

~ i n e s h ' sAccount

1987 Rs. 1987 Rs.

Mar. 11 To Returns Outward
A/c 600 Mar. 10 By Purchases A/c 24,000
" 31 To Balance c/d 23,400
24,000 24,000
Apr. 1 By Balance b/d 23,400
I I I I . I

Returns Outwards Account

1987
Mar. 3 1 To Balance c/d
T
I
Mar. 11

Apr. 1
By Dinesh's

By Balance b/d 1600

Rs.
600

Advertising Account

Mar. 14

Apr. 1 1 To CashA/c

To Balance b/d
1,500

1,500
Mar. 31 By Balance c/d 1,500

Capital Account
.
Mar. 31
1987 I To Balance c/d 1,20,000

I
1987
Mar.

Apr
1

1 I
By CashMc

By Balance b/d
1,20,000
Rs.

11.20~00
Furniture Account

Rs.
24,000 1 1987
Mar. 311 By Balancec/d

Apr. 1 ToBalance b/d

Purchases Account

7
1987 Rs.
To Vijay's ' Mar. 3 By Balance c/d 60,000

ToDinesh's
60,000

Apr. 1 To Balance b/d

Vijay's Ac )unt
1987 Rs. 1987 Rs.
Mar. 23 ToCash A/c 12,000 "dar. 2 By Purchase A/c 36,000
" 31 To Balancec/d 24,000 .
36,000 36,000

Apr. 1 By Balance b/d 24,000

 Ledger
Rent Account
1987 Rs. 1987 Rs.
Mar. 4 ToCashNc 3,000 Mar. 31 By Balance c/d 3,000

Apr. 1 ToBalance b/d 3,000

Stationery Account
1987 Rs. 1987 . Rs.
Mar. 15 To Cash A/c 300 Mar. 31 By Balance c/d 300
-
Apr. 1 ToBalance b/d 300

Drawings Account
-
1987 Rs. 1987 Rs.
Mar. 17 To Cash A/c 2,400 Mar. 3 1 By Balance c/d 2,400

Apr. 1 ToBalance b/d 2,400

Sanjay's Account
1987 Rs. 1987 Rs.
Mar. 24 ToSales A/c 15,000 Mar. 31 By Balance c/d 15,000

Apr. 1 To Balance b/d 15,000

Salaries Account

1987 Rs. 1987

Rs.
Mar. 31 ~ o C a s h k c 6,000 Mar. 31 By Balance c/d
6,000
Apr. 1 ToBalance b/d
-
6,000

Municipal Taxes Account

1987 Ma 1987
Mar. 31
Apr. 1
To Cash A/c

To Balance b/d
1,200

1,200
Mar. 3 1 By Balance c/d
1 Rs.
1,200

Printing Charges Account

1987 Rs. 1987 Rs.
Mar. 31 To Cash A/c 1,500 Mar. 31 By Balance c/d ' 1,500

Apr. 1 ToBalance b/d 1,500

Note: Nominal Accounts are balanced for the purpose of preparing the Trial
Balance which is being explained in the next section

6.7 SIGNIFICANCE OF BALANCE

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You have learnt that the 'balance in an account signifies the net effect of all
transactions related to it during a given period. It may be a debit balance or a
credit balance or a nil balance depending upon whether the debit or the credit total
is higher. Let us now understand the significance of a balance in respect of the
various types of accounts in the ledger.
Personal Accounts
,Personal accounts are more frequently balanced as compared to any other class of
accounts. Balance in a personal account indicates whether the party concerned
owes to the business or the other way round. When it shows a debit balance, it
means that tpe party owes that amount to the business. In other words he is a
 , . a

Books of Account-1 debtor to the business. Similarly, when it shows a credit balance, it would mean
that the business owes that amount to him i.e. he is a creditor of the business. If,
however, the account shows a nil balance, it means that the account has been
cleared, nothing is due to him or due from him.
Real Accounts
Real accounts are normally balanced at the end of the accounting period primarily
for the purpose of preparing the f n a \ accounts. The cash account, however, is
balanced everyday because the actual cash is to be verified and confirmed with the,
closing balance shown by CashAccount. All real accoupts show a debit balance as
there are assets (property) accounts.
Nominal Accounts
Nominal accounts are not usually balanced, but closed by transfer to Profit and
Loss Account, at the time of preparing the final accounts (at the end of the
accounting period). However, to start with, for the purpose of understanding the
procedure involved, nominal accounts have also been balanced. Even otherwise,
the difference between the debit side and credit side totals have to be worked out
for preparing the trial balance iyou will learn'about the trial balance later in this
unit). The accounts which relate to expenses or losses will show a debit balance;
whereas those relating to incomes and gains will have a credit balance. This is
because all expenses and l~ssesare debited and all incomes and gains are credited.

6.8 TRIAL BALANCE

You have learnt that every debit has its corresponding credit and this equality
between debits and credits is the essence of the double entry principle. You have
also seen that when a journal entry is passed, every debit has a corresponding
credit and this is verified by totalling every page of the journal. However, when
the journal entries are p o s t d to various accounts in the ledger, the debits and
credits get scattered and recorded in different accounts. Thus the individual debits
and credits forego their identity and get merged. At this stage it is necessary to
ensure that posting into ledger has been correctly done and to check whether the
equality between debits and credits has been maintained throughout. For this
purpose, a statement showing the balances of various accounts is prepared. This
statement is known as ' ~ f i a lBalance'.
The Trial Balance is usually prepared just before the preparation of final accounts '
in order to check the arithmetical accuracy of posting into ledger. However, to
demonstrate the mechanics of its preparation and to impress upon you the ability
of the Trial Balance in proviaing test of the arithmetical accuracy, an attempt is
made here to prepare the Trial
'
Balance. You will learn more details about the
Trial Balalice in Unit 11.
Since, under the doublekntry system, every debit has equal and corresponding
credit, the total of debits given to different accounts must equal the total of credits
given to different accounts. Continuing the same logic, since the balance on an
account represents the net effect of varioiis debits and credits posted to that
i .account, the total of debrbalances on different accounts must be equal to the
total of credit balances on different accounts. Thus the two totals i.e., the total of
debit balances and the total of credit balances should tally,thus upholding the
debit-credit equality. If however, the two totals do not tally, it would simply mean
that there are certain errors in posting.
A Trial Balance hw been prepared for the ledger accounts of Illustration 3 and
presented here. You will notice that all the accounts which appear in ledger have ,
been listed here and their balances entered in the appropriate columns. You will
<-
also observe that the debit and credit amount columns show equal totals, signifying
52 that the Trial Balance has tallied.
 Tdal Balance as on March 31, 1967 Ledger

-
Name of Account L.F. Dr. Cr .
Balances Balances
-
Rs. Rs.
Cash Account 91,050
Capital Account 1,20,000
Furniture Account u.m
Purchase Account - . . . . . 60.000
Vijay's Account 24,000
Sales Account 44.400
Rent Account 3,@JcJ
Arun's Account 6,000
Returns Inward Account 450
Dinesh's Account 23,400
Returns Outward Account . ' 600
Advertising Account 1,500
Stationery Account 300
Drawings Account 2,400
Sanjay's Account 15,000
Salaries Account 6.000
Municipal Taxes Account 1.200
Printing Charges Account 1,500

Total 2.12.400- 2,12,400

_ _ I . _

Check Your Progress-B

1 . Why do you balance an account?

...........................................................................................................

2. Explain the procedure for balancing a ledger account.

...........................................................................................................
...........................................................................................................
...........................................................................................................

3. Name the types of the accounts that are balanced.

............................................................................................................
............................................................................................................
............................................................................................................

4. What is a Trial Balance?

............................................................................................................
............................................................................................................
............................................................................................................

5 . Why do prepare a Trial Balance?

Books of Account--1
6.9 POSTING AN OPENING ENTRY
In Unit 5 , you learnt about the opening entry which is passed in the journal for all
assets and liabilities brought from the previous year. The posting of the opening
entry is very different from the posting of other journal entries. We open the
concerned accounts in the new ledger for all items that appear in the operiing
entry. Then, in the accounts which have been debited in the opening entry we shall
write 'To Balance b/f' in the Particulars column on the debit side of those
accounts and show the respective amount in the Amount column. Similarly, in the
accounts that have credited in the opening entry, we shall write 'By Balance b/f' in
the particulars column on the credit side of those accounts and show the respective
amount in the Amount column. Thus, the posting is complete. As a matter of
fact, the account which have been debited or credited in the opening entry merely
represent the closing balances of various personal and real accounts from the
previous year. These are now entered in the ledger accounts of the current year as
opening balances through the opening entry. illustration 4 should help you to
understand the posting of the opening entry.

Illustration 4

Post the following opening entry into ledger:

1987 Rs. Rs.
Jan. 1 Cash A/c Dr. 5,000
Stock A/c Dr 29,000
Furniture A/c Dr. 2.000
Shah & Co Dr. 2,000
Prem Chand Dr. 1,500
" To Ramesh La1 3,000
To Rakesh 1,000
To Capital A/c 26,500
(Being an opening
entry for assets and
liabilities b/f from
last year)

Solution:

CASH ACCOUNT
Dr. . Cr.
-
1987 Rs.
Jan. I To Balance b/f 5.OOo
-

STOCK ACCOUNT
!
1987 Rs.
Jan. 1 To Balance b/f m.m

FURNITURE ACCOUNT
-
1987 Rs.
Jan. 1 To Balance b/f 2.000

1987
Jan. 1
'1 To Balance b/f 1 , I I
 . . .

Ledger

1987 ' Rs .
Jan. 1 To Balance b/f 1.500

b. Rnmeab La's Account

1987 Rs.
Jan. 1 . By Balaua b/f 3,000

Rakeah's Account

1987 Rs.
Jan. 1 By Balance b/f 1,000

Capltnl Account

1987 Rs.
Jan. 1 By Balance b/f 26,500

*
6.10 LET US SUM liP
r,

1 ~ed~e;isa book which contains all the accounts atfected by various

transactions.
2 Journal by itself does not help us to know the net effect UI the various
transactions affecting a particular account. Hence, all journal entries are
posted into ledger accounts.
3 posting is made on the debit side of the accounts which have been debited in
the journal, and the credit side of the accounts which have been credited in
the journal.
4 As various transactions are posted to different accounts during a particular
period of time, it is necessary to ascertain the net effect of all the posting
made. This is done by balancing an account.
5 After various accounts are balanced, it would be useful to verify the
arithmetical accuracy of the double entry by preparing the Trial Balance.

6.11 KEY WORDS

Ba1ance:The ditference between the total of debits and total of credits appearing in
an account. It signifies the net effect of the transactions posted-to that account.
Ledger: A book *hich contains all accounts affected by variqus transactions in
business.
Posting: A process of entering transactions into ledger accounts.
Trial Balance: A statement of balances of various ledger accounts, prepared to test
'the arithmetical accuracy of the double entry.

6.12 SOME USEFUL BOOKS

Bierman, Harold & Deibin, Allen R.Financial.Accounting: An Introduction

(London: W B . Saundas Company), 1978, Chapter 4.
Grewal T.S. Double Entry Book-Keeping (New Delhi: Sultan Chand & Sons, 1986)
Chhpter 4.
Maheshwari, S.XPrinciples and Ractice of AccountmcyPart-I (New Delk ', Arya
Book Depot, 1986) Chapter 6.
Patil, V J A. & Korlahalli, J .S.PrincipIes and Ractice of Book-Keeping(New Delhi: 55
R, Chand & Co., 1985) Chapter 5
Books of Account--1
6.13 ANSWERS TO CHECK YOUR PROGRESS
A. 3. a) False b)True c) False
d) True e) ' ~ a l s e fl True

6.14 TERMINAL QUESTIONS/EXERCISES

Questions

1 Explain the rules regarding posting of journal entries into ledger accounts.
2 What is Balancing an Account? Explain how an account is balanced.
3 What is Trial Balance? Explain how is it prepared?

Exercises
1 Journalise the following transactions and post them into the Ledger.

1987 Rs.
Jan. 1 Manoj commenced business with cash 48,000
" 2 Deposited into bank 36,000
"
3 Purchased goods for cash 2,000
" 4 Bought furniture for office use 5,600
" 10 Drew from Bank for office use 4,000
"13 Goods sold to Rahul 2,400
" 15 Bought goods from Anil 1,600
" 18 Paid trade expenses 400
I
" 19 Received cash from Rahul 2,400
" 25 Paid wages 200
" 28 Paid Anil in full settlement 1,590
" 30 Paid rent 400
" 31 Interest on capital 400

2 Enter the following transactions in the journal of Harnath and post them into
the Ledger.

1987
Feb. 1 Commenced business with cash
" 2 Bought goods from Madhan
" 2 Purchased fittings for cash
" 2 Sold goods to Chetan
" 3 Paid Madhan on account
" 4 Sold goods to Pradeep
" 5 Received cheque from Chetan in full settlement of his
account
" 6 Paid wages
" 8 Bought goods for cash
" 9 Sold goods to Ravi
" 10 Purchased goods from Promod
" 11 Paid Madhan in final settlement
" 12 Paid carriage on goods sold
" 13 Paid wages
" 14 Bought goods from Mahesh
 Sold goods to Shyam Ledger
Shyam paid on account
Purchased goods from Hareesh
Sold goods for cash
Paid wages
Sent cheque to Hareesh
Sold goods to Sunil
Bought goods from Amar
Bought goods for cash
Sent cheque on account to Amar
Received from Sunil on Account
Paid wages
Paid rent

I 3 Enter the following transactions in journal, and post them into the ledger.

1987 Rs.
Mar. 1 Rohan commenced his business with the
following assets. Plant and Machinery
Stock
Furniture
Cash
His transactions for the month were
Sold goods t o Sanjay
Bought goods from Murari
Sanjay paid cash
Returned damaged goods t o Murari
Paid Murari on account
Bought goods from Govind
Sold goods t o Krishna
Received cash from Krishan
Krishna returned damaged goods
Paid to Govind
Paid salaries
Paid rent

4 Balance the ledger accounts in the Exercises 1 to 3.given above, prepare the Trial Balance
and verify the arithmetical accuracy.

Note: These questions and exercises will help you t o understand the unit better.
Try to write answers for them. But d o not send your answers t o the
university. These are for your practice only.