Journal, Ledger, Trial Balance Ppt

Presentation Topics covered:  Accounting Equation  Journal  Ledger  Trial Balance

Presented By: Bhawana and Esha PGDM 1st Sem

ACCOUNTING EQUATION OR DUAL CONCEPT Each Business transaction has a two fold effect and it is referred to as dual aspect or duality of a transaction.The dual aspect states that for each debit there is a credit i.e “for every debit there is a credit”.

An acconting equation is a statement of equality between the assets and the sources through which the assets have been financed and this can be expressed as

Assets=Sources Assets=Liabilities+ Capital Assets=Liabilities+Owner’s equity

CLASSIFICATION OF ACCOUNTS: Personal Account: Natural Personal Account i.e. account of natural or physical persons e.g Ram’s A/c, Sita’s A/c etc.  Artificial Personal Accounts i.e accounts of artificial or legal person e.g.accounts of firms,companies,banks,government,schools and colleges etc.  Representative personal accounts –these accounts are called representative personal account as they represent certain person behind them e.g outstanding expenses account,income received account

Impersonal Account:

Real Account: Real accounts are accounts of properties,assets or things owned by a

concern and with which the business is carried on.Real or assets accounts may be1)Tangible Assets-assets such as goods account,cash account,furniture account etc. 2)Intangible Assets- such as goodwill account,patent account,copyrights etc.

 Nominal Account: Nominal or fictitious accounts are accounts of the expenses and loses and income and gains which a concern earn in the course of its business1)income account-accounts of revenue,income,gains etc 2)Expenses account-accounts of loses such as bad debts ,discount allowed.

RULES OF DEBIT AND CREDIT Personal Accounts: Debit the receiver and credit the giver Real Accounts: Debit what comes in and Credit what goes out Nominal Account: Debit expenses and loses and Credit incomes and gains

JOURNAL

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Acc to Cropper “A journal is a book employ to classify or sort out transactions in a form convenient for their subsequent entry in the ledger”

• Acc to Rowland “the basic book of Journal is called Journal The process of recording the transaction into journal is called journalising.

NECESSITY OF JOURNAL Convenient recording of transaction Maintaining and preserving the identity of transaction Ascertaining the true nature of transaction Maintaining permanent record of information

FUNCTIONS OF JOURNAL To analyse each transaction into debit and credit so as to enable their posting in the ledger To arrange transaction ,chronological i.e in order of date.

ADVANTAGES OF JOURNAL • Show all necessary information relating to a transaction • Provide the explanation of the transaction • Date wise record of all the transaction can be obtained • Help in locating and preventing the errors

LIMITATIONS OF JOURNAL • Recording all the transaction in a journal requires: 1)writing down name of account involved 2)individual posting of each account debited and credited • Does not provide information on prompt basis • Does not facilitate the internal check system since the journal can be handled only by one person • Journal become bulky and voluminous

LEDGER • It is the principal book of accounts where similar transactions relating to particular person or thing are recorded • Acc to cooper “ledger epitomizes the general operations of principles of book keeping”

FEATURES OF LEDGER • Book of principal entry • Classified and summarized record • Posting

ADVANTAGES •

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Transactions relating to a particular person, item or heading of expenditure or income are grouped in the concerned account at one place. When each account is periodically balanced it reflects the net position of that account. Ledger is the stepping stone for preparing Trial Balance - which tests the arithmetical accuracy of the accounting books. Since the entries recorded in the journal are referenced into ledger the possibility of errors of defalcations are reduced to the minimum. Ledger is the destination of all entries made in journal or subjournals. Ledger is the "store-house" of all information which subsequently is used for preparing final accounts and financial statements.

TRIAL BALANCE

• It is a statement of all the balances from the ledger and cash book on a particular date. • Total debits should be equal to total credits. Acc to carter “trial balance is the list of debit and credit balances ,taken out from ledger it also includes the balances of cash and bank taken from cash book”

Features of trial balance • • • • • •

Particular date Agreement Arithmetical accuracy Errors Not conclusive Journalising and Ledger balances required

objectives • To check arithmetic accuracy of books of accounts • Completion of double entry system • To detect errors • Connecting link • To facilitate preparation of financial statements

Advantages • correct ledger balance •Helps in preparation of final accounts •Arithmetical accuracy • errors are revealed • If the total debit is not equal to the credit, it reveals the presence of some errors during the process of journalising or posting.

Limitations of Trial Balance… A Trial Balance does not necessarily prove that all the transactions have been recorded. It also does not shows the profit n loss of the business It does not give the information about each account There are some kinds of error that can still cause the Trial Balance to balance and not easy to detect.

Errors that can affect the Trial Balance: • Errors of calculation • Errors of omission of one entry • Posting to the wrong side of an account • Errors in amount

Errors not revealed by the Trial Balance: • Errors of Commission • Errors of Omission • Errors of Principle • Compensating errors • Errors of Original entry •Complete Reversal of entries

Methods for preparation of trial balance • Total method Trail balance is prepared by taking into account the totals of debit and credit balances of each account recorded in the ledger.

• Balances method • Trail balance is made on the basis of the balances of the accounts. it is also known as net trial balance.