Financial and

Management
Accounting By:
BITS Pilani Hema N C
hema.nc@wilp.bits-pilani.ac.in
Work Integrated Learning
Programmes Division
 BITS Pilani
Work Integrated Learning
Programmes Division

Ledger Posting / Trial Balance &

Rectification of Errors – Ch 3 of T1
 Recap of Ledger posting concepts
Double-entry System
The simplest form of account is called a T account with following three parts
1. The title that describes the name of the asset, liability or equity account
(real, personal or nominal a/c)
2. A left side, or debit side; and
3. A right side, or credit side
4. The difference in amounts between the total debits and total credits in an
account is the balance.
5. If the total debits exceed the total credits, the account has a debit balance.
6. If the total credits exceed the total debits, the account has a credit
balance.

Title of the Account

Left = Debit Right = Credit

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 Journal Entries

Balance of an account is the result of recording more increase than decrease

1. Asset Accounts – Have a debit balance

Ex: Land & Buildings, Plant & machinery, Furniture, Patents, Inventory, Bank/ Cash
etc

2. Liability Accounts – Have a credit balance

Ex: Lenders accounts, Creditors, Debentures, Bank overdraft etc

3. Capital Accounts- Have a credit balance

Ex: Capital accounts, Reserves, etc

4. Revenue Accounts- Have a credit balance

Ex: Sales, Discount received, Interest received, commissions received, etc

5. Expenses Accounts – Have a debit balance

Purchases, Wages & Salaries, Depreciation, Discount allowed, Rent etc

The usual balance for an account is its normal balance.

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 Balance of an Account
Types of Account Increase Decrease Normal Balance
Recorded by recorded by (balance b/d)
Asset Debit Credit Debit
Liability Credit Debit Credit
Equity
Share Capital Credit Debit Credit
Drawings/Dividend Debit Credit Debit

Income & Expenditure

Revenue Credit Debit Credit
Expenses Debit Credit Debit

• Closing Balance in Asset / Liabilities / Equity accounts will be carried forward to

the next accounting period.
• Closing Balance in Income and expenses accounts will be transferred to Profit and
Loss account /Income statement
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 Trial Balance

• The trial balance is a device for verifying the equality of

debit and credits.
• It lists each amount in the ledger with the debit balances
in the left column and the credit balances in to right
column.
• Each column has a total, and the two totals must be
equal.
• When this happens, the trial balance is said to be ‘in
balance’.
• The equality of the debit and credit totals of the TB
proves that transactions have recorded correctly.

01/29/2023 BITS Pilani, WILPD

 Trial Balance –
Practice problem
Journalize the following transactions, prepare the
Ledger accounts and Trial Balance
2021
1-Jan R commenced business with Cash 100000
2-Jan Purchased goods on credit from X 15000
3-Jan Machinery purchased for cash 22000
4-Jan Purchased goods on credit from Y 12000
7-Jan Returned goods to Y 6000
8-Jan Sold goods to C & Co. for cash 19500
15-Jan Sold goods to D on credit 16000
16-Jan Paid office rent 8500
22-Jan Received commission in cash 11000
24-Jan R's drawings from business in cash 4500
25-Jan Purchased office stationery in cash 2250
28-Jan Discount allowed to D 1500
30-Jan Received cash from D in full settlement 14500
31-Jan Paid Salaries to staff 7500

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 JOURNAL ENTRIES

1-Jan Cash A/C Dr 100000 

To Capital   100000
( Being cash invested in business)
2-Jan Purchases A/C Dr 15000 
Trade Payables - X A/c   15000
(Being material purchased from X on credit)
3-Jan Machinery a/c Dr 22000 
To Cash   22000
(Being machinery purchased in cash)
4-Jan Purchases a/c Dr 12000 
To Trade Payables Y   12000
(Being materials purchased on credit from Y)
7-Jan Trade Payables Y A/c Dr 6000 
To Purchase returns   6000
(Being goods returned to Y)

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Trial Balance

8-Jan Cash a/c Dr 19500 

To Sales   19500
(Being goods sold against cash)
15-Jan Trade Receivables D a/c Dr 16000 
To Sales   16000
(Being goods sold on credit to D)
16-Jan Rent a/c Dr 8500 
To Cash   8500
(Being rent paid in cash)
22-Jan Cash a/c Dr 11000 
To Commission Received   11000
(Being commission received in cash)
24-Jan Drawings a/c Dr 4500 
To Cash   4500
(Being cash drawn by the owner)

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Trial Balance

25-Jan Stationery a/c Dr 2250 

To Cash   2250
(being stationery for office purchased in cash)
28-Jan Discount allowed a/c Dr 1500 
To Trade receivable D A/c   1500
(Being discount allowed to D)
30-Jan Cash a/c Dr 14500 
To Trade receivable D   14500
(Being cash received from D in full settlement)
31-Jan Salaries A/c Dr 7500 
To Cash a/c   7500
(Being salaries paid in cash)

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 Ledger Accounts

Cash Account
                
Date Particulars JF Amount   Date Particulars JF Amount
1-Jan To Capital   100000   3-Jan By Machinery a/c   22000
8-Jan To Sales a/c   19500   16-Jan By Rent a/c   8500
22-Jan to Commission Received   11000   24-Jan By Drawings   4500

To Trade receivable D
30-Jan A/C   14500   25-Jan By Stationery a/c   2250
          31-Jan By Salaries a/c   7500
           By balance c/d   100250
   Total   145000      Total   145000
1-Feb To balance bd   100250          

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 Ledger Accounts
Discount allowed Account
Date Particulars JF Amount   Date Particulars JF Amount
To Trade receivables D
28-Jan A/c   1500          
          31-Jan By Balance c/d   1500
      1500         1500
1-FebTo Balance b/d   1500          

Capital Account
Date Particulars JF Amount   Date Particulars JF Amount
          1-Jan By Cash a/c   100000
31-Jan To balance c/d   100000          
      100000         100000
          1-FebBy Balance b/d   100000

Trade Payables X A/c

Date Particulars JF Amount   Date Particulars JF Amount
          2-Jan By Purchases a/c   15000
31-Jan To Balance c/d   15000          
      15000         15000
          1-FebBy balance b/d   15000
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 Ledger Accounts
Trade Payables Y A/c
Date Particulars JF Amount   Date Particulars JF Amount
7-Jan To Purchase returns   6000   4-Jan BY Purchases   12000
31-Jan To balance c/d   6000          
      12000         12000
          1-Feb By balance b/d   6000

Trade Receivable D A/c

Date Particulars JF Amount   Date Particulars JF Amount
15-Jan To Sales   16000   28-Jan By Discount allowed   1500
          30-Jan By Cash a/c   14500
      16000         16000

Commission Received Account

Date Particulars JF Amount   Date Particulars JF Amount
          22-Jan By Cash a/c   11000
31-Jan To balance c/d   11000          
      11000         11000
          1-Feb By balance b/d   11000

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 Ledger Accounts
Purchases Account
Date Particulars JF Amount   Date Particulars JF Amount
2-Jan To Trade Payables X A/c   15000          
4-Jan To Trade payables Y A/c   12000          
          31-Jan By balance c/d   27000
      27000         27000
1-Feb To balance b/d   27000          

Purchase Returns Account

Date Particulars JF Amount   Date Particulars JF Amount
          7-Jan By Trade Payables Y A/c   6000
31-Jan To balance c/d   6000          
      6000         6000
          1-Feb By balance b/d   6000

Machinery Account
Date Particulars JF Amount   Date Particulars JF Amount
3-Jan To Cash A/C   22000          
          31-Jan By balance c/d   22000
      22000         22000
1-Feb To balance b/d   22000          

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 Ledger Accounts
Sales Account
Date Particulars JF Amount   Date Particulars JF Amount
          8-Jan By Cash A/c   19500
By Trade Receivables - D
          15-Jan A/c   16000
31-Jan To Balance c/d   35500          
      35500         35500
          1-Feb By balance b/d   35500

Rent Account
Date Particulars JF Amount   Date Particulars JF Amount
16-Jan To Cash a/c   8500          
          31-Jan By balance c/d   8500
      8500         8500
1-Feb To balance b/d   8500          

Stationery Account
Date Particulars JF Amount   Date Particulars JF Amount
25-Jan To Cash a/c   2250          
          31-Jan By balance c/d   2250
      2250         2250
1-Feb To balance b/d   2250          

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 Ledger Accounts
Drawings Account
Date Particulars JF Amount   Date Particulars JF Amount
24-Jan To Cash a/c   4500         
          31-Jan By balance c/d   4500
      4500        4500
1-Feb To balance b/d   4500         

Salaries Account
Date Particulars JF Amount   Date Particulars JF Amount
31-Jan To Cash a/c   7500         
          31-Jan By balance c/d   7500
      7500        7500
1-Feb To balance b/d   7500         

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 TRIAL BALANCE
Trial Balance for the month of January
         
S.No Particulars LF Debit Credit
1 Cash   100250  
2 Discount allowed   1500  
3 Capital     100000
4 Trade Payables X     15000
5 Trade payables Y     6000
6 Commission received     11000
7 Purchases   27000  
8 Purchase returns     6000
9 Machinery   22000  
10 Sales     35500
11 Rent   8500  
12 Stationery   2250  
13 Drawings   4500  
14 Salaries   7500  
         
      173500 173500

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Income Statement for the
period ending January 31st
Particulars Amount Amount
Sales 35500
(-) Purchases (Less returns) 21000
Gross Profit 14500
Other Income – Commission Received 11000
Total Income 25500
(-) Salary Expenses 7500
Discount allowed 1500
Rent 8500
Stationery 2250 19750
EBIT 5750
(-) Interest 0
EBT 5750
(-) Tax 0
PAT (Net Profit)s 5750
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 Balance Sheet as on
January 31st
Liabilities Amount Assets Amount
Share Capital(less drawings)
(100000-4500) 95500 Machinery 22000
Trade Payables - Y 6000 Cash Balance 100250
Trade Payables - X 15000
Net Profit 5750

Total 122250 Total 122250

01/29/2023 BITS Pilani, WILPD

 Trial Balance – Errors and
their Rectification
• A trial balance that balances is a necessary condition for error-free accounting but it is not a sufficient condition.
• All errors detected should be corrected, whether they affect the trial balance or not.

• Steps for correcting the entries are

• Understand the erroneous entry.

• Visualize the correct entry.
• Record the correcting entry.

Errors can be broadly classified into two types

1. Errors which do not affect the agreement of the trial balance

2. Errors which do affect the agreement of the trial balance

Errors which do not affect the agreement of Trial Balance

Some errors may remain undetected in spite of the agreement of the Trial balance. They are classified as
• Errors of Omission – where a transaction is altogether not recorded. This does not affect the agreement as
there is no entry on both debit and credit side.
• Errors of Commission – where a wrong amount is entered in the basic journal entry. In this case also the TB
tallies as the same amount though incorrect, is posted both on the debit and credit side

01/29/2023 BITS Pilani, WILPD

 Trial Balance – Errors and
their Rectification
Errors that do not affect the TB (contd..)
• Compensating errors – where the effect of one error is compensated by another error
• Errors of Principle – when fundamental principle of accountancy is violated - ex: treating capital
expenditure as revenue or vice versa
• Errors of posting to a wrong account but on the correct side will not affect the TB

Errors which affect the agreement of Trial Balance

• Wrong Casting– When there is mistake in the total of the cash book or other subsidiary ledgers
and is carried to the TB. Ex: Total of purchases book has been added Rs.1500/- in excess.
When this total is taken to the TB on debit side, the same will not tally as this is a casting
mistake
• Posting to the wrong side– where a debit balance is posted on the credit side or vice versa, TB
will not tally
• Posting of wrong amount– where an incorrect amount is posted to the account in the ledger-ex
v- Purchase of goods from X for Rs.1000/- is posted correctly in the purchase register but an
amount of Rs.900/- has been posted to X’s account
• Omission of posting of one side of the entry– When an entry is posted from the Journal book to
the ledger, either a debit or credit is missed from being posted
• Errors of totalling and balancing of accounts in the ledger

01/29/2023 BITS Pilani, WILPD

 Trial Balance – Errors and
their Rectification
Rectification of the errors:
An error should be rectified by passing a suitable journal entry when they are double
sided errors
Rules to be followed for rectification of errors
S.No Nature of error Rectification
1 Account is showing an excess debit Should be credited in the rectifying entry
2 Account showing a short debit Should be debited in the rectifying entry
3 Account showing an excess credit Should be debited in the rectifying entry
4 Account showing a short credit Should be credited in the rectifying entry

1. Machinery purchased for Rs.5000/- has been debited to Purchases a/c

Rectification entry:
Machinery a/c Dr 5000/-
To Purchases a/c 5000/-

2. Rs.1500/- received towards sale of old newspapers and magazines credited to

Sales a/c
Rectification entry:
Sales a/c Dr 1500/-
To Misc. Income a/c 5000/-
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Exercise: Rectifying TB Errors
Examples:
1. Credit Sales of Rs.10000/- to Gaurav were recorded in the purchase book
Rectification entry is
Gaurav a/c Dr. 20000/-
To Sales a/c 10000/-
To Purchases a/c 10000/-
Wrong entry that was passed in the books
Purchases a/c Dr.10000/-
To Gaurav 10000/-
Correct entry that is to be recorded is
Gaurav a/c Dr.10000/-
To Sales 10000/-

2. Advance of Rs.5000/- received from Customer was credited to Sales account

Rectification entry is
Sales a/c Dr. 5000/-
To Advance from Customers 5000/-

Wrong entry that was passed in the books

Cash a/c Dr. 5000/-
To Sales 5000/-

Correct entry that is to be recorded is

Cash a/c Dr.5000/-
To Advance from Customers 5000/-

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Exercise: Rectifying TB Errors

3. Wages paid Rs.3720/- was recorded in the Cash book as RS.3270/-

Rectification entry is
Wages a/c Dr. 450/-
To Cash a/c 450/-
Original wrong entry was
Wages a/c Dr. 3270/-
To Cash a/c 3270/-
Correct entry that should have been recorded is
Wages a/c Dr. 3720/-
To Cash a/c 3720/-

4. Rs.3000/- spent on current repairs of Machinery were capitalized

Rectification entry is
Repairs a/c Dr. 3000/-
To Machinery a/c 3000/-
Wrong entry passed in the books was
Machinery a/c Dr.3000/-
To Cash a/c 3000/-
Correct entry that should have been recorded is
Repairs a/c Dr 3000/-/-
To Cash a/c 3000/-

01/29/2023 BITS Pilani, WILPD

Exercise: Rectifying TB Errors

When only one sided errors are located and rectified after the closing of the TB but before preparation of Final
accounts, a Suspense account is used to rectify the error as only one account is to be debited or credited. In case the
debit side of the TB is more than credit, the difference is put on the credit side to the suspense account and vice versa.
The errors are identified and rectification entries are passed through suspense account and finally the balance of
suspense account will be zero

1. Purchase book was undercast by Rs.1000/-

Rectification entry is
Purchases a/c Dr.1000/-
To Suspense account – 1000/-

2. Goods returned to Deva Rs.5000/- were posted to the credit of his account

Rectification entry is
Deva a/c Dr.10000/-
To Suspense account – 10000/-

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Exercise: Rectifying TB Errors

Thank you

01/29/2023 BITS Pilani, WILPD