12/04/2024
RECORDING BUSINESS
TRANSACTIONS -3
Recording, Posting and
Extracting Trial Balance
Definition of Ledger Account
• Ledger Account
– Complete listing of business transactions for an
individual account
– Where you look if you want to find the balance of any
given account
• General Ledger
– A loose-leaf book or computer file containing all the
Ledger Accounts
• Each account from the chart of accounts has its
own ledger account in the general ledger
• Complete listing of all account tittles and
account names/codes used by an entity is called
the chart of accounts - It is like a table of
content in a book
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Transaction Analysis and The
Duality Concept
❖Double entry system states that every
transactions affects at least two accounts.
❖Therefore
• If an asset account increases (decreases),
because of duality concept there must be a
corresponding:
1. Increase(decrease) in a specific liability account
2. A decrease(increase) in a another asset
account
3. An increase(decrease) in owners' equity
account.
Posting -Defined
❑ The process of transferring figures from
the journal to the ledger accounts
❑ It simply involves transferring data from
one accounting entry into another
❑ The purpose is to classify and summarize
transactions and events affecting
specific elements of the financial
statements
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Posting –Defined…
• The process of transferring figures
from the journal to the ledger accounts
• It simply involves transferring data
from one accounting entry into another
• The purpose is to classify and
summarize transactions and events
affecting specific elements of the
financial statements
Posting to The Ledger illustrated
GENERAL JOURNAL Page 1
Date Account Title and Description Ref Debit Credit
1 Jan 2004
Cash 100 100,000
Capital 500 100,000
Being Capital introduced
LEDGER - Acc. No. 100
Cash Account
Date Description Ref Debit Date Description
Ref Credit
1 Jan 2004
Capital P 1 100,000 31-Jan Balance c/d 100,000
LEDGER - Acc. No. 500
Capital Account
Date DescriptionRef Debit Date Description
Ref Credit
31-Jan Balance c/d 100,000 01-Jan Cash P1 100,000
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Recording and Posting illustrated
Consider the following transactions
Date Description
1 Jan Capital intoduced cash 100,000,000
1 Jan Cash paid Office rent 600000
2 Jan Purchased Office furniture and equipment and paid cash 5,000,000
3 Jan Paid insurance premium by cash 120,000
05-Jan Opened bank account with cash 20,000,000
10 Jan Received Bank loan cash 15,000,000
10 Jan Office supplies paid by cash 2,500,000
20 Jan Credit Purchases from vendors 6,000,000
22 Jan Cash Sales 9,000,000
23 Jan Credit sales Customers for the month 2,500,000
23-Jan Cash Purchases 8,000,000
24 Jan Paid salaries 9,000,000
31 Jan Withdrawal cash for personal use 3,000,000
Exercise
• Record all the above transactions to the
books of original entry and post to the
ledgers
• Balance off the ledger accounts
• Determine the balances carried down (Bal
c/d) and balances brought down (b/d)
• Prepare a summary of the ledger balances
in a two columnar listing to derive the
Trial Balance( TB)
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Preparing a Trial Balance
• List the ledger account
balances in two columns on the
trial balance
–Left column = Debits
–Right column = Credits
• Trial balance proves DR = CR
The Balancing of Accounts, The Trial Balance &
Financial statements
❑ In the previous exercise , you have learned the
principles of double entry and how to post to the
ledger accounts. The next step in our progress
towards the financial statements is the trial
balance.
❑ Before transferring the relevant balances at the
year end to the financial statements, it is usual to
test the accuracy of the double entry bookkeeping
records by preparing a trial balance. This is done
by taking all the balances on every account. Due to
the nature of double entry, the total of the debit
balances will be exactly equal to the total of the
credit balances.
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The Balancing of Accounts & The Trial Balance
❑ Question: Once you have closed all the accounts, what would do?
❑ Answer: Prepare a Trial Balance
❑ Question: What is a Trial Balance then? What is it for?
How does it look like?
❑ Answer: A Trial Balance is a list of nominal ledger account
and their balances at a given date. It is usually
prepared on the last day of the accounting
period. It consists of a Debit and a Credit balance.
Its purposes:
(1) It is prepared to check that the total of debit balances is the
same as the total of credit balances and offer reassurance that the
double entry recording from day books has been done correctly.
(2) For preparation of statement of profit or loss and other
comprehensive income and the statement of financial position
The Balancing of Accounts & The Trial Balance
The rules to prepare the Trial Balance:
Total Debit Entries = Total Credit Entries
Debit Credit
Assets Income/
Expenses Revenue
Drawings Liabilities
Capital
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The Balancing of Accounts & The Trial Balance
Steps to preparing the Trial Balance:
1) Balance/cast ALL the ledger accounts in the books.
2) List all the Debit balances on the debit side and add them
up.
3) List all the Credit balances on the credit side and add
them up.
4) Ideally the trial balance should balance after step 3
The Balancing of Accounts & The Trial Balance
What if the trial balance shows
unequal debit and credit
balances?
If the columns of the trial
balance are not equal, there must
be an error in recording or
processing the transactions.
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The Balancing of Accounts & The Trial Balance
However, a trial balance will not disclose the
following types of errors: (Errors not revealed by
the trial balance)
1) Errors of omission
Complete omission of a transaction, because neither
a debit nor a credit is made.
2) Errors of commission
This happens when original figure incorrectly
entered. (Correct double entries but incorrect
amounts were recorded)
The Balancing of Accounts & The Trial Balance
3) Compensating errors
This happens where errors cancel out each other.
(eg an error of TZS 100,000 is exactly cancelled
by another TZS 100,000 error elsewhere).
4) Errors of principles
This happens when the wrong type of account had
been used (eg the purchase of a motor van is debited
to a expense account, such as motor expenses, rather
than a fixed asset account)
5) Complete reversal of entries
This happens when an account should be debited but
was credited (and vice versa)
6) Duplication Error
This happens when a transactions is posted more
than once in ledgers
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End of Recording and Posting of
Transactions
Thank you
All the best in your coming exams
