EPFO – Batch
Topic – Journal and Ledger
Journal is called the Books of Original Entry since all
transactions are initially recorded in it.
Journal is a book of prime entry or a book of original
entry in which transactions are first recorded in the
order of sequence.
Ledger is called Principal book of account as all the
accounting information can be obtained from this book.
A company has thousands of financial transactions in a year
and journalizing them all can get quite bothersome. So some
companies choose to prepare separate journal to record
particular type of transactions of a similar nature in
chronological order.
Example – Purchase Journal , Sales journal etc.
These separate journals are called Special Journals or
Subsidiary Book.
• Subsidiary Books are those books of original entry in which transactions of
similar nature are recorded at one place and in chronological order. Journal
is also called as Subsidiary Book.
• The transactions are recorded first in the journal and then they are posted
to the ledger. Thus journal is the book of first or original entry while the
ledger is the book of second entry.
• The process of recording transactions is called as Journalizing.
• The process of recording transactions in the ledger is known as posting.
• A ledger is also called the book of final entry, since all the
transactions recorded in Books of Original Entry are transferred in
the ledger.
• Ledger is the most important book of account, since the trial
balance, financial statements are prepared. Hence Ledger is called
the Principal Book of Account.
• Ledger is a master record of all the accounts of the business.
• It is prepared from Journal
• Ledger accounts shows the current balance in all accounts.
• Trial balance and Final Accounts are prepared from Ledger
Accounts.
• Ledger Accounts summaries the effects of transactions upon assets,
liabilities, capital, incomes and expenditure.
LEDGER
A ledger account may be defined as a summary statement of
all the transactions relating to a person, asset, expense or
income which have taken place during a given period of
time and shows their net effect.
Ledger Format
Date Particular F Amou Date Particular F Amoun
nt t
To, Name of Rs By, Name of Rs
credit A/c debit A/c
Each account in the ledger is divided into two
equal parts by a vertical line. The left hand side of the
account is known as debit side and the right hand side is
called credit side.
‘F’ stands for folio (page number) of the
journal or subsidiary book.
Salaries Account
Date Particular J.F Amoun Date Particular J.F Amount
t
To Bank A/c 15000 Rs
Bank Account
Date Particular J.F Amoun Date Particular J.F Amount
t
By Salaries 15,000
A/c
Ledger Posting of Journal
Every transaction is first recorded in the journal in the form
of a journal entry.
From the journal it is transferred to the concerned accounts
in the ledger. This process of transferring the transaction
from the journal to the ledger is known as Posting.
Balancing of Accounts
Various accounts in the ledger are balanced with a
view to preparing the final accounts.
1) Take the totals of the two sides of the account concerned.
2) Ascertain the difference between the totals of two sides.
3) Enter the difference in the amount column of the side
showing less total writing against the difference in the
particular column “To, balance c / d” [ c/d means carried
down] on the debit side of the account and “By, Balance c/d”
on the credit side of the account. In this way, the totals of
two sides will agree.
4) The balance is brought forward at the beginning of the next
period. If “To, Balance C/d” is written on the debit side
before balancing, it is brought forward on the credit side and
“By, Balance b/d” [b/d means brought down] is written
against the balance in the particulars column and vice versa.
Q. Journalise the following transactions and post them
into ledger:
1 Jan 2014 Cash in hand 15000
1 Jan 2014 Purchased goods from Ashoka 5000
6 Jan 2014 Sold goods to Madhav 4000
8 Jan 2014 Pinto invoiced goods 8000
9 Jan 2014 Purchased Goods 7000
15 Jan 2014 Cash sales made 12000
18 Jan 2014 Paid cash to Ashoka 4000
20 Jan 2014 Received from Madhav 2000
Balancing of Ledger Account
After posting the transactions, accounts are balanced every year or
after a certain period.
Balancing an account means that the two sides of an accounts are
totaled and the difference in total of the two sides is written on
the side whose total is smaller.
Balancing of Ledger Account
An account is said to have a debit balance if the total
of its debit side is more than the total of its credit side.
On the other hand, an account is considered to have a
credit balance if the total of its credit side is more than the total
of its debit side.
Trial Balance
Trial Balance is a list of balances extracted
from the ledger accounts at the end of an accounting period.
Since the balances in ledger accounts are effects of double
entries, the total of debit balances should be equal to total of
credit balances.
Uses of Trial Balances
1) It is the basis of preparation of Final Accounts.
2) It helps in verifying the arithmetical accuracy of ledger
accounts.
The two sides of the trial balance will not tally if a mistakes
has taken place in the following.
a) Posting
b) Totaling
c) Balancing.
Nature of Balances:
In the normal circumstances,
i) All assets accounts & also dues from persons will show
debit balances.
ii) All liabilities accounts will show credit balances.
iii) All expenses account will show debit balances.
iv) All income accounts will show credit balances.
Sl No Particulars LF Debit Credit
Balance Balance
Rs Rs
Errors Revealed by the Trial Balance:-
1) Incorrect balances of the cash book.
2) Incorrect totals in purchases, purchase returns, allowances
or sales day books.
3) Entries posted to the wrong side of an account.
4) Omission of a debit or a credit in posting from the journals
to the ledger.
5) Incorrect figures posted from a journal to the ledger
account.
6) Discounts transferred incorrectly.
Procedures for locating Errors in the Trial Balance
a) Check the cash balance in the cash book against the actual
cash in hand.
b) Check and reconcile the bank balance in the cash book
against the balance in the bank statement.
c) Prove the purchases and purchases returns figures against
the purchases control account.
Errors not revealed by the Trial Balance:-
1) Errors of omission:
This type of errors occurs when an
accounting document, e.g. an invoice or a credit note, is lost
or mislaid, the result being that there is no debit or credit
entry in either the book of first entry or the ledger account.
2) Errors of original entry:
This type of error occurs when an
amount on an invoice, e.g. Rs. 600, is entered wrongly in the
book of first entry, e.g. Rs. 666, and then is posted wrongly
to the ledger account, as Rs. 666.
As there has been a debit entry and a
credit entry for the same amount, the totals of the trial
balance will still be in agreement.
3) Errors of principle:
This type of error occurs when a
transaction has a debit entry and a credit entry but the item is
posted in principle to the wrong classification of account.
E.g. Motor expenses of Rs. 300 has been debited to motor
vehicles account.
4) Errors of commission:
When a wrong amount is entered
either in the subsidiary books or in the ledger accounts or
when amount is posted on the wrong side, it is a case of
errors of commission.
For example, if fuel costs are incorrectly debited to the
postage account (both expense accounts). This will not affect
the totals.
5) Compensating errors:
An example of this type of errors is
where the wages account has been over-added by Rs. 5,000
& by coincidence the sales account has been over added by
Rs. 5,000. So an error on debit side is compensated by an
error on the credit side.
6) Errors of duplication:
An example of this type of error is
when the same invoice is entered into the purchases day
book twice and posted from there to the ledger account
twice.
The Suspense Account:-
When trial balance does not tally , the
difference is put into a newly opened account named
suspense account and the trial balance is thus made to tally.
In case , the debit side exceeds the credit
side the difference is put on the credit side of suspense
account . Likewise , if the credit side of the trial balance
exceeds the debit side , the difference is put on the debit side
of suspense account.
Trial Balance
Trial Balance is a list of balances extracted from the ledger
accounts at the end of an accounting period. Since the
balances in ledger accounts are effects of double entries, the
total of debit balances should be equal to total of credit
balances.
Uses of Trial Balances
1) It is the basis of preparation of Final Accounts.
2) It helps in verifying the arithmetical accuracy of ledger
accounts.
The two sides of the trial balance will not tally if a mistakes
has taken place in the following.
a) Posting
b) Totaling
c) Balancing.
Nature of Balances:
In the normal circumstances,
i) All assets accounts & also dues from persons will show
debit balances.
ii) All liabilities accounts will show credit balances.
iii) All expenses account will show debit balances.
iv) All income accounts will show credit balances.
Sl No Particulars LF Debit Credit
Balance Balance
Rs Rs
Format of
Trial Balance
