Recording of Business Transactions: Journal, Ledger, Trial Balance
What the domain tests
Recording of Business Transactions: Journal, Ledger, Trial Balance tests the full bookkeeping cycle: analyse a transaction, apply debit and credit rules, record it in the journal, post to ledger accounts, balance them, and extract a trial balance.
Core rules
- Debit the receiver, credit the giver for personal accounts; debit what comes in and credit what goes out for real accounts; debit expenses and losses, credit incomes and gains for nominal accounts.
- Journal format: date, particulars, L.F., debit amount, credit amount, narration.
- A compound entry records more than two accounts in one journal entry.
- Ledger posting uses “To” for credit entries and “By” for debit entries in the account concerned.
- Trial balance lists debit and credit balances; total debits must equal total credits.
Worked example
Jan 1: proprietor brought cash ₹50,000. Jan 3: bought furniture ₹10,000 cash. Jan 5: sold goods on credit to Ravi ₹8,000. Journal: Cash A/c Dr 50,000 to Capital A/c 50,000; Furniture A/c Dr 10,000 to Cash A/c 10,000; Ravi A/c Dr 8,000 to Sales A/c 8,000. Ledger balances: Cash ₹40,000 Dr; Furniture ₹10,000 Dr; Capital ₹50,000 Cr; Ravi ₹8,000 Dr; Sales ₹8,000 Cr. Trial balance totals: debits 40,000+10,000+8,000=58,000; credits 50,000+8,000=58,000.
Traps
A trial balance can agree despite errors of omission, principle, original entry, or compensating errors; it detects only one-sided and some posting and arithmetic errors. Do not post a credit sale to cash, and remember that a credit balance in a nominal account is income or gain.