Ledger and Trial Balance

Ledger is a book where all types of accounts are maintained and each account contains a
summarized and classified record of all business transactions.

Why is the Ledger necessary in presence of Journal?

Journal provides the complete description and two-fold aspects of every transaction in
chronological order, but it does not provide the summarized information about a particular head
of account. Ledger contains all types of accounts and each account contains summarized and
classified record of all relevant transactions. So it is easy to find the summarized record of any
ledger account while the Journal does not facilitate it.

For example;

Suppose, if a business entity wants to know the total cash balance for a particular
month. To serve this purpose, an accountant will have to go through all those Journal
entries in which cash is involved and this task may take lots of time and efforts due to
hundreds/thousands of recorded cash transactions. To overcome this problem, all the
debit and credit balances of cash are transferred to the cash account which makes easy
to determine the balance of a particular account at a particular period.

Posting is the process of transferring information of debit and credit from journal to ledger
accounts.

Balance is the difference of total of debit and total of credit side of account.

Balancing is the process to equalize two sides of account.

Debit balance arises if total of debit amounts is greater than total of credit amounts. Debit
balance is to be written in credit side of account for balancing or to ensure equality of two sides.

Credit balance arises if total of debit amounts is lessor than total of credit amounts. Credit
balance is to be written in debit side of account for balancing or to ensure equality of two sides.

Normal balances of different types of accounts:

Assets and Expenses accounts: Debit balance

Capital, Liability and Revenue accounts: Credit balance

Balance C/D or Balance C/F: Balance C/D means balance carried down. Balance C/F means
balance carried forward. Both represent the closing balance.

Balance B/D or Balance B/F: Balance B/D means balance brought down. Balance B/F means
balance brought forward. Both represent the opening balance.

The closing balance of one accounting period will be the opening balance of the next accounting
period.

Forms of Ledger Accounts:

There are two basic forms of ledger account.

1. Standard/Periodical Balance Form:

• In this from, the page of the ledger is vertically divided into two halves, the
left half is meant for recording debit entries and right half for credit entries.
• It provides summarized detail of any account at the end of specific period.

2. Self-Balancing/ Running Balance Form:

• In this from, the page of the ledger is not vertically divided into two halves
i.e., debit and credit side. We add additional balance column with other
particular columns. The additional balance column provides the balance at
each stage of account so it is called Self-Balancing/ Running Balance form of
ledger.

Standard Format of a Ledger Account:

Title of Account ___________ A/C Code No. _______

Debit Credit

Date Particulars J.R Amount Date Particulars J.R Amount

Rs. Rs.
Format of Self-Balance/Running Balance Ledger Account

Title of Account ___________ A/C Code No. _______

Balance
Debit Credit
Date Particulars J.R Debit Credit
Rs. Rs.
Rs. Rs.

Explanation of the Formats:

• Title of Account: It represents name of particular account i.e., Cash, Capital or

Purchases account etc.

• A/C Code No: It represents the specific Code No. of particular account.

• Date: Date of a particular transaction

• Particulars: Here, name of opposite account used in journal for preparing a particular

account is written as a reference

• Amount: Amount of a particular transaction is written either in debit or credit.

• Journal Reference (J.R.): In this column, page number of General Journal is to be

mentioned from where a particular transaction is posted. In case of need J.R is very

beneficial for detecting the entry from journal very quickly.

• Balance: It is the difference of debit amount and credit amount at each stage which

represents balance either debit or credit at each particular period.

 How to prepare standard form ledger account:

Let, on first February 2016, Mr. Ali started business with cash of Rs. 500,000. On 15th of
February, he purchased goods amounting to Rs. 150,000 on cash basis. At first we record the
journal entries in Journal then post them into particular ledger account. Journal contains three
different accounts i.e. cash account, capital and purchases account. So cash account, capital
account and purchases account are needed to be prepared. For your understanding Cash account
is prepared. The procedure is same for other ledger accounts.

General Journal
Page # 01
Debit Credit
Date Description L/F
Rs. Rs.

2016
Feb 01 Cash A/c 1 500,000
To Capital A/c 2 500,000
( Initial Investment made in business)
“” 15 Purchases A/c 3 150,000
To Cash A/c 1 150,000
( being the purchase of goods on cash)
Total 750,000 750,000

Standard Format Ledger Account:

Title of Account: Cash account Account Code No. 1

Debit Credit

Date Particulars J.R Amount Date Particulars J.R Amount

(Rs.) (Rs.)

2016 2016

Feb 01 Capital A/c 1 500,000 Feb 15 Purchases A/c 1 150,000

‘’ 29 Balance c/d 350,000

Total 500,000 Total 500,000

Page number of journal

Debit closing balance (difference of
from where Total all debit amounts and all credit
information is taken
amounts i.e., 500,000 – 150,000 =
 How to prepare self-balancing form ledger account:

We have taken the same example used to explain the standard form ledger account for
explaining the self-balancing form ledger account.

General Journal
Page # 01
Debit Credit
Date Description L/F
Rs. Rs.

2016

Feb 01 Cash A/c 1 500,000

To Capital A/c 2 500,000

( Initial Investment made in business)

“” 15 Purchases A/c 3 150,000

To Cash A/c 1 150,000

Total 750,000 750,000

Self-balancing Format Ledger Account:

Title of Account Cash Account Account Code No. 1

Date Particulars J.R Debit Credit Balance

Rs. Rs. Debit Credit

Rs. Rs.

2016

Feb 01 Capital A/c 1 500,000 500,000

“” 15 Purchases A/c 1 150,000 350,000

Page number of journal

from where
information is taken Debit balance 500,000 – 150,000 = 350,000 it is
on Feb 01, 2016 a debit balance on Feb 15 2016.
 Trial Balance:

When we have prepared all ledger accounts then the balances of these ledger accounts are to be
transferred to trial balance. If the total of debit column and credit column is equal then we may
assume that there is no mistake in previous books of accounts. Otherwise there is mistake
somewhere and need to be rectified before go ahead for final accounts. It should be noted that
the if the trial balance is in agreement, it does not mean that previous books of accounts are 100
% correct from all aspects because some errors like “Errors of omission” and “Compensating
errors” etc. cannot be detected by trial balance. However, trial balance ensures the arithmetic
accuracy of books of accounts and it provides the help to prepare the financial statements.

Account code of particular

account is to be mentioned Amounts of particular accounts with
in this column respect to their balances either debit or
credit should be written in these
l
Format of Trial Balance:

Name of Co.

Trial Balance

As on ----------

Account Debit Credit

S.No. Account Names Code
No. Rs. Rs.

1 Asset account 1 xxx

2 Liability account 3 xxx
3 Income account 5 xxx
4 Expense account 7 xxx
5 Capital account 8 xxx
6 Drawing account 10
xxx xxx

Some accounts
mentioned as a sample
for understanding
Total of debit Total of credit
Particular date should amounts amounts
be mentioned
Practice Question

Date Transactions Rs.

2016

Feb 01 Mr. Akram started his business with:

Cash 500,000
Machinery 900,000

‘’ 02 Purchased goods on cash 100,000

‘’ 10 Goods bought on account 80,000

‘’ 12 Machinery sold for cash 500,000

‘’ 14 Goods sold on cash 200,000

‘’ 18 Sold goods on account 150,000

‘’ 20 Goods returned from customers 15,000

‘’ 26 Additional machinery purchased 300,000

‘’ 29 Paid salaries for the month 10,000

Required:

Record the above transactions in journal and post them into ledger with standard
format as well as with self-balancing ledger format.
 Solution
General Journal
Page # 01
Debit Credit
Date Description L/F
Rs. Rs.

2016

Feb 01 Cash A/c 1 500,000

Machinery A/c 2 900,000

To Capital A/c 3 1,400,000

( being the initial Investment made in business)

‘’ 02 Purchases A/c 4 100,000

To Cash A/c 1 100,000

( being the purchases of goods on cash basis)

‘’ 10 Purchases A/c 4 80,000

To Accounts Payable 5 80,000

( Being the purchase of goods on credit basis)

‘’ 12 Cash A/c 1 500,000

To Machinery A/c 2 500,000

( Being the sale of machinery on cash basis)

‘’ 14 Cash A/c 1 200,000

To Sales A/c 6 200,000

( Being the sale of goods on cash basis)

‘’ 18 Accounts receivable A/c 7 150,000

To Sales A/c 6 150,000

( Being the sale of goods on credit basis)

Total C/F 2,430,000 2,430,000

 Page # 02

Debit Credit
Date Description L/F
Rs. Rs.

Total B/F 2,430,000 2,430,000

‘’ 20 Return inwards A/c 8 15,000

To Accounts Receivable 7 15,000

( Being the goods returned from customers)

‘’ 26 Machinery A/c 2 300,000

To Cash A/c 1 300,000

(purchase of machinery on cash)

‘’ 29 Salaries A/c 9 10,000

To Cash A/c 1 10,000

( Being the payment of salaries)

Grand Total 2,755 ,000 2,755 ,000

 STANDARD FORM LEDGER ACCOUNTS

Title of Account Cash Account A/C Code No. 1

Debit Credit

Date Particulars J.R Amount Date Particulars J.R Amount

(Rs.) (Rs.)

2016 2016

Feb 01 Capital A/c 1 500,000 Feb 02 Purchases A/c 1 100,000

‘’ 12 Machinery A/c 1 500,000 ‘’ 26 Machinery A/c 2 300,000

‘’ 14 Sales A/c 1 200,000 ‘’ 29 Salaries A/c 2 10,000

‘’ 29 Balance c/d 790,000

1,200,000 1,200,000

Title of Account Machinery Account A/C Code No. 2

Debit Credit

Date Particulars J.R Amount Date Particulars J.R Amount

(Rs.) (Rs.)

2016 2016

Feb 01 Capital A/c 1 900,000 Feb 12 Cash A/c 1 500,000

‘’ 26 Cash A/c 2 300,000 ‘’ 29 Balance c/d 700,000

1,200,000 1,200,000
Title of Account Capital Account A/C Code No. 3

Debit Credit

Date Particulars J.R Amount Date Particulars J.R Amount

(Rs.) (Rs.)

2016 2016

Feb 01 Cash A/c 1 500,000

‘’ 01 Machinery A/c 1 900,000

Feb 29 Balance c/d 1,400,000

1,400,000 1,400,000

Title of Account Purchases Account A/C Code No. 4

Debit Credit

Date Particulars J.R Amount Date Particulars J.R Amount

(Rs.) (Rs.)

2016 2016

Feb 02 Cash A/c 1 100,000

‘’ 10 Accounts Payable 1 80,000

A/c
Feb 29 Balance c/d 180,000

180,000 180,000
Title of Account Accounts Payable Account A/C Code No. 5

Debit Credit

Date Particulars J.R Amount Date Particulars J.R Amount

(Rs.) (Rs.)

2016 2016

Feb 10 Purchases A/c 1 80,000

Feb 29 Balance c/d 80,000

80,000 80,000

Title of Account Sales Account A/C Code No. 6

Debit Credit

Date Particulars J.R Amount Date Particulars J.R Amount

(Rs.) (Rs.)

2016 2016

Feb 14 Cash A/c 1 200,000

‘’ 18 Accounts 1 150,000
Receivable A/c

Feb 29 Balance c/d 350,000

350,000 350,000
Title of Account Accounts Receivable Account A/C Code No. 7

Debit Credit

Date Particulars J.R Amount Date Particulars J.R Amount

(Rs.) (Rs.)

2016 2016

Feb 18 Sales A/c 1 150,000 Feb 20 Return Inwards 2 15,000

A/c

‘’ 29 Balance c/d 135,000

150,000 150,000

Title of Account Returns Inwards Account A/C Code No. 8

Debit Credit

Date Particulars J.R Amount Date Particulars J.R Amount

(Rs.) (Rs.)

2016 2016

Feb 20 Accounts 2 15,000

Receivable A/c
Feb 29 Balance c/d 15,000

15,000 15,000

Title of Account Salaries Account A/C Code No. 9

Debit Credit

Date Particulars J.R Amount Date Particulars J.R Amount

(Rs.) (Rs.)

2016 2016

Feb 29 Cash A/c 2 10,000

Feb 29 Balance c/d 10,000

10,000 10,000
 SELF-BALANCING/RUNNING BALANCE LEDGER ACCOUNTS

Title of Account Cash Account A/C Code No. 1

Date Particulars J.R Debit Credit Balance

Rs. Rs. Debit Credit

Rs. Rs.

2016

Feb 01 Capital A/c 1 500,000 500,000

‘’ 02 Purchases A/c 1 100,000 400,000

‘’ 12 Machinery A/c 1 500,000 900,000

‘’ 14 Sales A/c 1 200,000 1,100,000

‘’ 26 Machinery A/c 2 300,000 800,000

‘’ 29 Salaries A/c 2 10,000 790,000

Title of Account Machinery Account A/C Code No. 2

Date Particulars J.R Debit Credit Balance

Rs. Rs. Debit Credit

Rs. Rs.

2016

Feb 01 Capital A/c 1 900,000 900,000

‘’ 12 Cash A/c 1 500,000 400,000

‘’ 26 Cash A/c 2 300,000 700,000

Title of Account Capital Account A/C Code No. 3

Date Particulars J.R Debit Credit Balance

Rs. Rs. Debit Credit

Rs. Rs.

2016

Feb 01 Cash A/c 1 500,000 500,000

‘’ 01 Machinery A/c 1 900,000 1,400,000

Title of Account Purchases Account A/C Code No. 4

Date Particulars J.R Debit Credit Balance

Rs. Rs. Debit Credit

Rs. Rs.

2016

Feb 02 Cash A/c 1 100,000 100,000

‘’ 10 Accounts Payable A/c 1 80,000 180,000

Title of Account Accounts Payable Account A/C Code No. 5

Date Particulars J.R Debit Credit Balance

Rs. Rs. Debit Credit

Rs. Rs.

2016

Feb 10 Purchases A/c 1 80,000 80,000

Title of Account Sales Account A/C Code No. 6

Date Particulars J.R Debit Credit Balance

Rs. Rs. Debit Credit

Rs. Rs.

2016

Feb 14 Cash A/c 1 200,000 200,000

‘’ 18 Accounts Receivable 1 150,000 350,000

A/c

Title of Account Accounts Receivable Account A/C Code No. 7

Date Particulars J.R Debit Credit Balance

Rs. Rs. Debit Credit

Rs. Rs.

2016

Feb 18 Sales A/c 1 150,000 150,000

‘’ 20 Return Inwards A/c 2 15,000 135,000

Title of Account Returns Inwards Account A/C Code No. 8

Date Particulars J.R Debit Credit Balance

Rs. Rs. Debit Credit

Rs. Rs.

2016

Feb 20 Accounts Receivable 2 15,000 15,000

A/c
Title of Account Salaries Account A/C Code No. 9

Date Particulars J.R Debit Credit Balance

Rs. Rs. Debit Credit

Rs. Rs.

2016

Feb 29 Cash A/c 2 10,000 10,000

Mr. Akram

Trial Balance

As on Feb. 29, 2016

Account Debit Credit

S. No. Account Names
Code No. Rs. Rs.

1 Cash account 1 790,000

2 Machinery account 2 700,000
3 Capital account 3 1,400,000
4 Purchases account 4 180,000
5 Accounts Payable account 5 80,000
6 Sales account 6 350,000
7 Accounts Receivable A/c 7 135,000
8 Returns Inwards A/c 8 15,000
9 Salaries A/c 9 10,000

1,830,000 1,830,000

Note: Please consult recommended books mentioned in “books” Tab of

VU-LMS for more practice.