Ledger and Trial Balance
What this domain tests
This domain checks whether you can post journal entries into ledger accounts, balance them correctly, and use a trial balance to locate errors. Questions typically supply a list of balances, or a journal and ask for ledger accounts, the trial balance total, or the suspense account.
Core rules
- Posting: the account debited in the journal is debited in the ledger, showing the name of the opposite account with 'To' on the debit side and 'By' on the credit side; the L.F. column links journal to ledger.
- Balancing: personal and real accounts are balanced and carried down (balance c/d, then balance b/d on the next period); nominal accounts are closed by transfer to Trading or Profit & Loss.
- A trial balance is a statement, not an account, of debit and credit balances as at a date. It is not part of double entry and never appears in the financial statements.
- Errors disclosed by a trial balance: one-sided posting, wrong casting, posting to the wrong side, omitting an account balance, wrong carry-forward. Such differences are parked in a suspense account.
- Errors not disclosed: complete omission of a transaction, error of principle, compensating errors, error of original entry, posting to a wrong account of the right class.
Worked example
Balances: Cash 50,000; Bank 80,000; Purchases 2,00,000; Debtors 1,20,000; Rent 30,000; Salaries 60,000; Furniture 1,50,000; Drawings 50,000; Capital 3,00,000; Sales 3,50,000; Creditors 90,000. The debit column totals ₹7,40,000 and the credit column ₹7,40,000, so the trial balance agrees. If the sales book is later found undercast by ₹900, credits are short by ₹900, so a debit of ₹900 to Suspense A/c is required before the columns agree again.
Traps
Placing the capital balance in the debit column; balancing nominal accounts instead of closing them; presenting the trial balance as a ledger account; forgetting that drawings and purchases are debit balances; assuming an agreed trial balance proves there are no errors.