Ledger Accounts, Double Entry and Trial Balance
Ledger Accounts, Double Entry and Trial Balance
This domain tests the debit and credit rules, the ability to balance ledger accounts, and the purpose and limitations of a trial balance. Expect questions that require ledger postings or identify why a trial balance still balances despite errors.
Core rules
- Debit entries increase assets, expenses and drawings; credit entries increase liabilities, capital and income.
- For every transaction, total debits equal total credits.
- A ledger account is balanced by inserting the difference on the smaller side; the balance is then brought down.
- A trial balance lists debit and credit balances to check arithmetic equality, not absolute accuracy.
- Errors that do not affect trial balance equality include complete omission, wrong account of the same type, compensating errors, and reversal of entries.
Worked example
From the ledger, extract: cash RM5,000 debit; equipment RM8,000 debit; purchases RM3,000 debit; rent RM1,000 debit; capital RM10,000 credit; loan RM4,000 credit; sales RM3,000 credit. Debit total = RM17,000; credit total = RM17,000. The trial balance agrees. If rent of RM1,000 had been debited to purchases instead, the trial balance would still agree because both accounts are debits, but the income statement would be wrong.
Traps
- Debiting an increase in a liability.
- Recording drawings as a business expense.
- Assuming an agreed trial balance proves there are no errors.
- Forgetting to bring down the opening balance on the opposite side.
Key points
- Debit assets, expenses and drawings
- Credit liabilities, capital and income
- Trial balance checks arithmetic only
- Some errors leave it balanced
- Balance accounts and bring down balances