WEEK 4

Ledgers and Trial Balance

1
Ledgers and Accounts
A ledger is a system that is used to record changes in
the basic elements of a business (assets, liabilities,
owner’s equity, income and expenses)
An account is a section of a ledger and is used to
record changes to the basic elements of a business.
 ‘T’ account format – which requires a special
balancing procedure
 Columnar account format – balances provided
after each entry

2
‘T’ account format
Cash at Bank Account (Asset)
Date Particulars Amount Date Particulars Amount

Debit Side Credit Side

 The account drawn up in the form of a “T”.
 Its left side is the debit side and its right side
is the credit side.
Balancing the Easy to use
accounts is and
laborious and time understand
consuming
3
Columnar account format
Cash at Bank Account (Asset)
Date Particulars Debit Credit Balance

 It has a debit column, a credit column

and a balance column.
 The process of balancing is performed
after each entry.

4
Trial Balance
A statement listing all accounts in the ledgers
and their final balance as either a debit or a credit.
Checking the double-entry rules of debits and
credits used to record the financial information in
the ledgers.
Total debits should always equal total credits.

5
Steps to prepare a Trial Balance
Balance off all the accounts in
the ledger.

List all debit balances on one

side and all credit balances on
another side.

Add up the debits and the

credits – the sum of the two
sides should be equal.
6
Example

7
Trial Balance and Errors
If the trial balance is not in balance, the following
steps are helpful in determining the reasons for
the imbalance:
1. Ensure that all the accounts appear on the
trial balance.
2. Ensure that the balances of each account
are recorded in their correct debit & credit
column on the trial balance.
3. Verify the additions & subtractions in the
accounts.
4. Look for amounts that may be transcribed
incorrectly.
8
Limitations of the Trial Balance
Some errors that the trial balance will not
disclose:
 Transactions completely omitted.

 Transactions entered in the wrong accounts.

 An arithmetic mistake which is

compensated by another mistake of the
same value.

9
Errors not Affecting the Trial Balance

Error of omission- Omitted and not

recorded at all
Error of commission- Correct side of
the ledger but the wrong account
Complete reversal of entries- Offsetting
errors
Error of principle- Recorded in a wrong
class of account

10
Errors Affecting the Trial Balance

Error of omission of one entry- Only one

entry is made
Error of posting to the wrong side of an
account
Errors of transposition- Amount was
correctly recorded in one side of the
accounts but wrongly recorded in the
other side

11
Trial Balance is not an account and does
not form part of the double-entry system.
It is only an internal document, which is
usually prepared at the end of the
accounting period for checking the
double-entry rules.

12
Brain Breaks

Question 1
A cash sale of $325 was correctly
debited the cash at bank account but
credited as $352 in the sales account.

13
Question 2
A cash purchase is only debited in the
purchase account but not credited in the
cash at bank account.

Question 3
A transaction is made but not posted to
any of the ledger accounts.

14
DEBIT and CREDIT rules

Increased with Decreased with

Debits Credits

Expense
s
Assets
Drawing
s
Normal Balance is
Debit
DEBIT and CREDIT rules

Decreased with Increased with

Debits Credits

Liabilitie
s
Incomes
Capital
Normal Balance is
Credit
Ledger Accounts
Each account needs to be created just once

For every debit entry there should be an equal

credit entry
Transactions must be cross-referenced when
recorded in the ledger

17
The General Ledger and Subsidiary
Ledgers
The General ledger contains the main accounts
(A, L, OE, I and E) of a business.
For most businesses have large numbers of
debtors and creditors, it is normal practice to
record the details on individual debtors and
creditors in separate subsidiary ledgers
independently from the General ledger.

18
Subsidiary Ledgers
Thus, the General ledger would contain an
Accounts Receivable Control Account and an
Accounts Payable Control Account, the balances
of which would represent the combined balances
of all individual debtors and creditors accounts.
Details for each individual debtors and creditors
are kept in the Accounts Receivable Subsidiary
ledger and Accounts Payable Subsidiary ledger.

19
Advantages of Subsidiary Ledgers
A great amount of detail is removed from the general
ledger and so the preparation of the trial balance and
subsequent reports becomes easier and quicker.
Subsidiary ledgers encourage control.

For example, the accounts receivable subsidiary

ledger provides complete and accurate details of
each debtor, which enables a separate credit
department to monitor the affairs of each debtor
(particularly overdue amounts).

20
BRAIN BREAKS

Question 4
Lien Sim commenced a dress boutique in Maldon on 1
January 2019. She asks you to open ledger
accounts for her in columnar format and to record the
following transactions:

2019
1 Jan Commenced business as Lien’s Fashions by
contributing $3,600 into a business bank account.
2 Purchased stock of dresses on credit from Beau
Gowns for $1,400.
3 Cash purchases of dresses, $650.
4 L Sim withdrew $200 cash for her personal use.
5 Sales of dresses on credit to Z Bell, $1,150.
6 Rent of $300 was paid in cash.
21
Question 5
A Christy has been in business as a floor coverings retailer for several
years. You are required to:
(a) Open a ledger and record the transactions listed below for the
business, Christy Floor Coverings
(b) Prepare a trial balance for the business as at 31 January 2017.

2017
1 Jan Christy Floor Coverings has the following balances in its ledger at
the beginning of the year:

Cash at bank $9,000 Creditor- D Frost $3,500

Shop premises $355,700 Furniture and fittings $31,200
Trading stock $27,600 Debtor- S Hall $5,400
Motor vehicle $12,800 Capital- Christy $438,200

22
4 Jan $4,400 was received from debtor- S Hall.
7 Purchased stock of carpets for cash, $2,500.
11 Obtained a loan of $75,000 cash from Berber Finance Co.
16 Sales of floor coverings: for cash, $13,500; on credit to S
Hall, $2,700.
19 Paid the following expenses by cheque: wages, $2,350;
power and light, $120; cleaning, $570.
24 A Christy withdrew $300 cash to pay her bowling club
membership fee.
28 Paid creditor- D Frost the balance owed to her.
31 Purchased more stock on credit from D Frost, $5,000.

23