Trial Balance and Rectification of Errors class 11 Notes Accountancy

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Trial Balance and Rectification of Errors class 11 Notes Accountancy

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Trial Balance and Rectification of Errors class 11 Notes Accountancy

Trial Balance and Rectification of Errors Chapter 6 class 11 Notes Accountancy

LEARNING OBJECTIVES

· After studying this chapter Students will be able to tell:

· Meaning and Importance of Ledger.

· Format of Ledger.

· Posting from Journal.

· Postings from Cash Book and other Subsidiary Books.

· Closing and Balancing of Ledger Accounts.

· Trial Balance – Meaning, objectives and Preparation.

LEDGER

Meaning: After recording the business transactions in the Journal or special purpose Subsidiary Books, the next step is to transfer the entries to the respective accounts in the Ledger. Ledger is a book where all the transactions related to a particular account are collected at one place.

Definition: The Ledger is the main or Principal book of accounts in which all the business transactions would ultimately find their place under various accounts in a duly classified form.

UTILITY OF LEDGER

To know the collective effect of all the transactions pertaining to one particular account.

By this classification/collective effect, we are able to know the following-

· provides complete information about all accounts.

· It provides position of Assets and Liabilities.

· It facilitates to prepare Trial Balance.

Important: Ledger is also called the Principal Book of Accounts

Performa for Ledger

Each ledger account is divided into two equal parts. Left Hand Side → Debit side (Dr.)

Right Hand Side → Credit side (Cr.)

Name of the Account

DateParticularsJ.FAmount

(Rs.)

DateParticularsJ.FAmount

(Rs.)

Posting in the Ledger: This will be dealt separately from Journal Entries and each Subsidiary Book.

Case I : Posting from Journal Entries

· If an account is debited in the journal entry, the posting in the ledger should be made on the debit side of that particular account. In the particulars column the name of the other account (which has been credited in the Journal entry) should be written for reference.

· For the A/c credited in the Journal entry, the posting in the ledger should be made on the credit side of that particular A/c. In the particulars column, the name of the other account that has been debited (in the Journal entry) is written for reference.

Important

· ‘To’ is written before the A/cs which appear on the debit side of Ledger

· “By” is written before the A/cs appearing on the credit side Ledger.

· Use of these words ‘To’ and ‘By’ is optional.

Case II : Ledger postings from Cash Book

Important points

1. Cash Book itself serves as a cash A/c also, therefore when cash book is maintained, cash A/c is not opened in the ledger.

2. When Bank column is maintained in the Cash Book, Bank A/c is also not opened in the ledger. The Bank column itself serves the purpose of Bank A/c.

3. Opening and closing balances of Cash Book will not be entered in the ledger.

4. As Cash Book serves the purpose of Cash/Bank A/c, it means that, only the second A/c (other than Cash A/c or Bank A/c) is to be opened in the ledger and posting is to be made for each entry in the Cash Book.

Rules of posting

(a) Posting from the Debit Side of Cash Book

Entries appearing on the debit side of Cash Book are to be posted to the Credit Side of respective accounts in the Ledger by writing the words.

‘By Cash A/c’ → if it is from the Cash Column

By Bank A/c → if it is from the Bank Column.

(b) Posting from the Credit Side of Cash Book

‘By Cash A/c’ → if it is from the Cash Column

‘By Bank A/c’ → if it is from the Bank Column

(c) All contra entries marked ‘C’ are ignored while posting from the Cash Book to the Ledger because double aspect of such transactions is completed in the Cash Book itself.

Case III : Ledger posting from Purchases book

Journal Entry for Credit Purchases is

Purchases A/c Dr

To Supplier

Therefore the rules of posting from Purchases Book are.

1. The total of the purchase Book will be posted to the Debit side of purchase A/c and the words “To Sundries as per purchase Book” will be written in the particulars column.

2. Each of the Supplier’s A/c will be Credited and the words. “By Purchases A/c” will be written in the particulars column.

CASE IV: Ledger Posting from Sales Book

Journal Entry for Credit sales is

Customer Dr.

To Sales A/c

Hence rules for posting from sales Book are

1. Total of the Sales book will be posted to the credit side of sales A/c by writing the words ‘’By sundries as per Sales Book’’

2. Customer’s personal A/cs are debited by writing the words ‘’To Sales A/c’’

Case V : Ledger Posting from Purchase Return Book

Journal Entry for purchase Return is

Personal A/c of Supplier Dr.

To Purchase Returns A/c

Hence the rules for posting are

1. Supplier’s A/c (to whom the goods are returned) is debited by writing the words ‘’To Purchase Return A/c’’)

2. The total of the purchases return Book is credited to the Purchases Return A/c by writing the words ‘’By Sundries as per Purchases Return Book’’.

Case VI : Ledger Postings of Sales Returns Book

Journal Entry for the sales Return is –

Sales Returns A/c Dr.

To Customer

Hence the Rules for Posting are

1. Individual Customer’s A/cs by whom the goods are returned are Credited by writing the word ‘’By Sales Return A/c.’’

2. The total of the Sales Returns Book is posted to the Debit of Sales Returns A/c by writing the words. ‘’To Sundries as per Sales Returns Book’’.

CLOSING AND BALANCING OF ACCOUNT

Normally after every month or whenever a businessman is interested in knowing the position of various A/cs, the accounts are balanced. Various steps for these purposes are:

1. Debit and Credit sides of each A/c are totaled.

2. The difference between the two sides is inserted on the side which is shorter so as to make their totals equal.

3. The words ‘Balance C/d’ i.e., the balance carried down and written against the amount of difference.

4. In the next period, the balance is brought down on the other side by writing the words ‘Balance b/d’.

5. If the Debit side exceeds the Credit Sides the difference is a Debit Balance whereas.

6. If the Credit side exceeds the Debit side the difference is a Credit Balance.

Important

1. Debit Balance of a Personal A/c means the person is a Debtor of the firm whereas Credit Balance of a Personal A/c indicates that the person is a Creditor of the firm.

2. Real A/cs (which include Cash and all other Assets A/cs) will usually show Debit Balances.

3. Nominal A/cs (A/cs of Income and Expenses) are transferred to Trading and profit and Loss A/c of the firm at the end of the Accounting Period.

4. Debit Balance of any A/c means an Asset or an Expense whereas Credit Balance means a liability, Capital or Income earned.

TRIAL BALANCE

I. Meaning : When posting of all the transactions into the Ledger is completed and accounts are balanced off, then the balance of each account is put on a list called Trial Balance.

II. Definition : 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 the Cash Book”.

III. Preparation : Steps (Only Balance Method)

1. Ledger A/cs which shows a debit balance is put on the Debit side of the trial balance.

2. The A/c Showing credit balance is put on the Credit side of Trial Balance.

3. Accounts which shows no balance i.e. whose Debit and Credit totals are equal are not entered in Trial Balance.

4. Then the two sides of the Trial Balance are totalled. If they are equal it is assumed that there is no arithmetical error in the posting and balancing of Ledger A/cs.

Objectives or Functions of Trial Balance

· It helps in ascertaining the arithmetic accuracy of ledger accounts.

· Helps in locating errors.

· Provides the summary of Ledger A/cs.

· Helps in the preparation of Final A/cs.

Recording in the journal and Subsidiary Books, posting into the Ledger and preparation of Trial Balance can be clearly understood with the help of the example given on next pages.

Note:

1. Entries marked with *will not be posted anywhere in the ledger.

2. Closing Balances of Cash and Bank will be shown in the Trial Balance.

3. All other A/cs shown in the Debit side will be credited & All other A/cs shown in the Credit side will be debited.

Purchases Book

DateName of the Supplier (Account to be Credited)Inv. No.L.F.Detail (Rs.)Total Amt (Rs.)
2013
Jun 2Ramesh & Co.

Less Trade Discount 10%

20,000

2,000

18,000
Jun 23Vishal24,000
Jun 30Purchase A/c Dr.42,000

Sales Book

DateName of the Supplier (Account to be Credited)Inv. No.L.F.Detail (Rs.)Total Amt (Rs.)
2013
Jun 12Amit & Co.25,000
Jun 19Mohit Bros.16,000
Jun 30Sales A/c Cr.41,000

Sales Return Book

DateName of the Supplier (Account to be Credited)Inv. No.L.F.Detail (Rs.)Total Amt (Rs.)
2013
Jun 24Amit & Co.2,000
Jun 30Sales Return A/c Dr.2,000

Purchase Return Book

DateName of the Supplier (Account to be Credited)Inv. No.L.F.Detail (Rs.)Total Amt (Rs.)
2013
Jun 5Ramesh & Co.
Less Trade Discount 10%
2,000
200
1,800
Jun 30Purchase Return A/c Cr.1,800

Posting of opening Entries:

1. First of all opening Journal Entry is done in the Journal proper.

2. All Assets A/cs are Debited and Liabilities A/cs are Credited. Difference between the totals of the two sides is the Capital.

Important: Besides opening Journal entries, any transaction which is not covered under any of the Subsidiary Book is recorded in Journal proper.

Journal proper

DateParticularsL.F.Amount (Dr.)Cr. Rs. (Cr.)
2013
Jun 1Cash A/c. Dr.50,000
Amit & Co. Dr.15,000
Sumit Brothers Dr.30,000
Stock A/c Dr.1,75,000
Machinery A/c Dr.1,20,000
Furniture A/c Dr.40,000
To Bank (Overdraft) Rs.33,000
To Virat & Co.24,000
To Vishal16,000
To Credit A/c (Balancing fig)3,57,000
(opening Balance, brought forward from the previous years books)
Jun 16Drawing A/c Dr.3,000
To Purchase A/c

(Goods withdrawn for personal use)

3,000

Ledger Accounts

Amit & Co.

DateParticularsJ.F(Rs.)DateParticularsJ.F.(Rs.)
20132013
Jun 1To Balance b/d15,000Jun 15By Cash A/c10,000
Jun 12To Sales A/c25,000Jun 15By Bank A/c8,000
Jun 24By Sale Return A/c2,000
Jun 30By Balance c/d20,000
40,00040,000
Jul 1To Balance b/d*20,000

Sumit Bros.

DateParticularsJ.F(Rs.)DateParticularsJ.F.(Rs.)
20132013
Jun 1To Balance b/d*30,000

Stock Account

DateParticularsJ.F(Rs.)DateParticularsJ.F.(Rs.)
20132013
Jun 1To Balance b/d*1,75,000

Machinery Account

DateParticularsJ.F(Rs.)DateParticularsJ.F.(Rs.)
20132013
Jun 1To Balance b/d1,20,000Jun 30By Balance c/d1,20,000
1,20,0001,20,000
Jul 1To Balance b/d*1,20,000

Furniture Account

DateParticularsJ.F(Rs.)DateParticularsJ.F.(Rs.)
20132013
Jun 1To Balance b/d40,000Jun 30By Balance c/d40,000
40,00040,000
Jul 1To Balance b/d*40,000

Virat & Co.

DateParticularsJ.F(Rs.)DateParticularsJ.F.(Rs.)
2013
Jun 1To Balance b/d24,000

Balance on June 30th is Nil in this A/c (Virat & Co.) Vishal’s A/c

DateParticularsJ.F(Rs.)DateParticularsJ.F.(Rs.)
20132013
Jun 1By Balance c/d16,000
Jun 30To Balance c/d40,000Jun 23By Purchases A/c24,000
40,00040,000
July 1By Balance b/d*40,000

Capital Account

DateParticularsJ.F(Rs.)DateParticularsJ.F.(Rs.)
20132013
Jun 30To Balance c/d3,27,000Jun 1By Balance c/d3,27,000
3,27,0003,27,000
July 1By Balance b/d3,27,000

Drawings Account

DateParticularsJ.F(Rs.)DateParticularsJ.F.(Rs.)
20132013
Jun 16To Cash A/c5,000Jun 30By Balance b/d8,000
Jun 16To Purchase A/c3,000
8,0008,000
July 1By Balance b/d8,000

Ramesh & Sons

DateParticularsJ.F(Rs.)DateParticularsJ.F.(Rs.)
20132013
Jun 5To Purchase Return A/c1,800Jun 2By Purchase A/c18,000
Jun 10To Bank A/c16,200
18,000

Purchase Account

DateParticularsJ.F(Rs.)DateParticularsJ.F.(Rs.)
20132013
Jun 20To Cash A/c15,000Jun 16By Drawing A/c3,000
Jun 16To Sundries as per the Purchase Book42,000Jun 30By Balance b/d54,000
57,00057,000
July 1By Balance b/d*54,000

Mohit Brothers

DateParticularsJ.F(Rs.)DateParticularsJ.F.(Rs.)
20132013
Jun 19To Sales A/c16,000Jun 25By Cash A/c10,000
Jun 30By Balance c/d6,000
16,00016,000
July 1By Balance b/d*16,000

Rent Account

DateParticularsJ.F(Rs.)DateParticularsJ.F.(Rs.)
20132013
Jun 27To Bank A/c2,800Jun 30By Balance c/d2,800
Jun 30By Balance b/d*2,800

Commission Account

DateParticularsJ.F(Rs.)DateParticularsJ.F.(Rs.)
2013
Jun 27By Cash A/c800

Salaries Account

DateParticularsJ.F(Rs.)DateParticularsJ.F.(Rs.)
20132013
Jun 30To Cash A/c5,000

Sales Account

DateParticularsJ.F(Rs.)DateParticularsJ.F.(Rs.)
2013
Jun 30To Sundries as per the Sales Book41,000

Sales Return Account

DateParticularsJ.F(Rs.)DateParticularsJ.F.(Rs.)
20132013
Jun 30To Sundries as per the Sales Return Book2,000

Purchase Return Account

DateParticularsJ.F(Rs.)DateParticularsJ.F.(Rs.)
2013
Jun 30To Sundries as per the Purchase Return Book1,800

TRIAL BALANCE

as on 30th June, 2011

ParticularsL.F.Amount (Dr.)Cr. Rs. (Cr.)
Cash A/c55,800
Bank (overdraft) A/c54,000
Amit & Co.20,000
Stock A/c1,75,000
Machinery A/c1,20,000
Furniture A/c40,000
Vishal’s A/c15,000
Capital A/c3,57,000
Drawings A/c8,000
Purchases A/c54,000
Mohit Brothers6,000
Rent A/c2,800
Commission A/c800
Salaries A/c5,000
Sales A/c41,000
Sales Return A/c2,000
Purchase Return A/c1,800
Sumit Brothers30,000
Virat & Co.24,000
Vishal25,000
Total5,18,6005,18,600

Suspense Account :

When Trial Balance Does not agree, then first of all we try to locate the errors. Sometimes, inspite of the best efforts, all the errors are not located and the Trial Balance does not tally. Then in order to avoid delay in the preparation of final accounts, a new account is opened which is known as “Suspense Account” Difference in Trial Balance is posted to this Account.

1.If there is Excess Debit in the
Trial Baal
Difference is posted to the Credit side of Suspense A/c
2.If there is Excess Credit in the Trial BalanceDifference is posted to the Debit side of Suspense A/c

Suggested Methodology

1. Explanation and Illustration Method.

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