Ledger and Trial Balance
Ledger
The ledger is the principal book: a set of T-form accounts each with a debit and a credit side, and each posting carrying date, particulars, journal folio and amount. Posting is the transfer of debit and credit amounts from the journal to the respective accounts. At the end of the period the shorter side is closed with "Balance c/d" and the balance is brought down on the opposite side as "Balance b/d" on the first day of the next period. Assets and expenses normally show debit balances; liabilities, capital and incomes normally show credit balances.
Trial balance
A trial balance is a statement, not an account, listing debit and credit balances on a given date to test arithmetical accuracy. It is prepared from the ledger, not from the journal.
Worked example
Balances available: Cash ₹40,000 (Dr), Purchases ₹90,000 (Dr), Salaries ₹12,000 (Dr), Sales ₹1,10,000 (Cr), Creditors ₹32,000 (Cr). Debit column = 40,000 + 90,000 + 12,000 = ₹1,42,000; credit column = 1,10,000 + 32,000 = ₹1,42,000. The agreement proves only that debits equal credits, not that the accounts are correct.
Errors a trial balance does not reveal
- Complete omission of a transaction from both accounts.
- Error of principle, such as treating a capital expense as revenue.
- Compensating errors in different accounts.
- Posting to the correct side of a wrong account (a sale to Arun posted to Arul).
- Recording the same wrong amount in both accounts of an entry.
Traps
Calling the trial balance an account; including closing stock when it is not in the ledger; netting a debtor's credit balance instead of showing it as a liability; assuming agreement proves accuracy.