Accounting: Book-keeping, Journal, Ledger, Trial Balance, Final Accounts
Accounting: Book-keeping, Journal, Ledger, Trial Balance and Final Accounts tests the double-entry cycle from a transaction to published-style statements, including adjustments.
The accounting cycle
Book-keeping records transactions systematically. The accounting equation is assets = liabilities + capital. Golden rules: personal accounts debit the receiver and credit the giver; real accounts debit what comes in and credit what goes out; nominal accounts debit expenses and losses and credit incomes and gains. A journal entry has date, particulars, ledger folio, debit and credit. Ledger accounts collect postings. A trial balance lists debit and credit balances; equal totals indicate arithmetical consistency, not absolute accuracy. Final accounts include trading account, profit and loss account and balance sheet. Adjustments cover outstanding and prepaid expenses, accrued and unearned income, depreciation, bad debts, closing stock and drawings.
Worked example
Goods of Rs 20,000 are purchased for cash. Purchases is a nominal expense, so debit purchases Rs 20,000. Cash is a real asset going out, so credit cash Rs 20,000. Post both to ledger accounts; the trial balance carries purchases on the debit side and cash on the credit side. In final accounts, purchases enter the trading account, while cash appears in the balance sheet.
Traps
Do not treat trade discount as a ledger entry; it is deducted on the invoice. Cash discount is recorded. Trial balance equality does not prove no errors. Capital is a credit balance and drawings a debit. Closing stock appears in the trading account and balance sheet, not in the trial balance before adjustment.