Importance of Ledger

A ledger provides the net result of all transactions in respect of a particular account on a given date.

Format of the account                

  Dr.                                            Name of the Account                                                              Cr.

How to make entry in an account?

The information will be entered in the account as follows:

1. An account is debited or credited according to the rules of Double Entry.

2. Title of the account: The Name of the item is written at the top of the format with suffix ‘Account’.

3. Dr. /Cr.: Dr. means Debit side of the account i.e. left side and Cr. Means Credit side of the account, i.e. right side.

4. Date: Year, Month and Date of the transactions in chronological order in this column.

5. Particulars: In the Account to be debited, in particulars column on Debit side, write the name of account to be credited. In the Account to be credited, in particulars column of Credit side, write the name of account to be debited.

6. Journal Folio: It records the page number of the journal on which relevant transaction is recorded. This column is filled up at the time of posting (to be left blank by the students, if no specific information is given in this regard).

7. Amount: This column records the amount in numerical figure, corresponding to what has been entered in the amount column of the journal.

8. To/By: It is customary to write ‘To’ on debit side with particulars and ‘By’ on credit site.

Distinction between Journal and Ledger

The Journal and the Ledger are the most important books are indispensable for an accounting system but are different.

Classification of Ledger Accounts

Ledger accounts are put into five categories namely, assets, liabilities, capital, revenues/gains and expense losses. All these accounts may further be put into two groups, i.e. permanent accounts and temporary accounts.

All assets, liabilities and capital accounts are permanent accounts, are balanced and carried forward to the next accounting period and appear in the balance sheet.

Revenue and expense accounts are temporary accounts and are closed at the end of the accounting period by transferring them to the trading and profit and loss account.

Posting from Journal

It is the process of transferring the entries from the journal to the ledger.

Posting from the journal is done periodically, may be, weekly or fortnightly or monthly as per the requirements and convenience of the business.

Balancing the Accounts

Accounts in the ledger are generally balanced at the end of the accounting period, with the object of ascertaining the net position of each account.

Balancing of an account means that after totalling the two sides the difference is put to shorter side in order to make their totals equal and the words ‘balance c/d’ are written against the amount of this difference.

In case the debit side total is more than the credit side total, the difference is written on the credit side and is called debit balance and, if the credit side total is more than the debit side total, the difference is written on the debit side and is credit balance.

The accounts of expenses losses and gains/revenues are not balanced but are closed by transfer to Trading Account and Profit and Loss Account.

The accounts of Real and Personal nature are balanced and taken to Balance Sheet.

Precautions while preparing Ledger Accounts and other statements:

• Balance b/d is for opening and Balance c/d is for closing the account.
• Account’s name should begin with a capital letter.
• Write Dr. and Cr. above the accounts.
• Particulars column should be broader / wider than amount columns.
• Account Name (Heading) should be in the Centre.
• Date is usually written as: Year, Month and Date.
• In Amount column put ‘₹’ symbol of the Rupee.
• Write the digits one below the other in amount columns.
• Use the coma for the amounts like ₹35,000.
• The totals of both the sides should be on the same line.
• The Total should be double-underlined.

Trial Balance

Nature of Account Class 11

Nature of Account Balance

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Trial Balance is the summary statement showing the balances of all accounts, debit as well as credit, where the total of Debit balances and Credit balances are always equal. The trial balance is prepared with the primary purpose of checking the arithmetical accuracy of accounting records of the business.

Objectives of Trial Balance

Main objectives of preparing Trial Balance are;

(1) To check the arithmetical accuracy of accounting records.

(2) To find out the errors in accounting records.

(3) To facilitate the preparation of final accounts i.e. preparing Trading and Profit and Loss Account and Balance Sheet.

How to prepare Trial Balance?

Trial Balance is to be prepared by Balance Method, taking the net balances of ledger accounts, in the form of following statement:

The above table can be summarized as following:

Assets accounts ---------------------------------------Debit

Expenses/losses accounts ---------------------------Debit

Liabilities accounts ----------------------------------Credit

Capital account---------------------------------------Credit

Gains/Incomes/Profits accounts-------------------Credit

Provision against Asset Account-------------------Credit

The condition: Totals of both the sides i.e. Debit Balances and Credit Balances in Trial balance must be equal to ensure the arithmetical accuracy of the accounting books.

There can be cases when this condition is not satisfied and is proof of presence of some error which must be located (found out) before preparing Final Accounts i.e. Financial Statements of the business.

Following steps can be taken to find the error:

1. Check the totals of debit and credit columns of the trial balance.

2. Check the name and amount of the account appearing in the trial balance, with that of the ledger to detect any difference in amount or omission of an account.

3. Check the correctness of balances of individual accounts in the ledger.

4. Check the correctness of the posting in accounts from the subsidiary journals.

5. See, if the difference between the debit and credit columns is divisible by 2, there is a possibility that an amount equal to one-half of the difference may have been posted to the wrong side of another ledger account.

6. There can also be a complete omission of a posting.

7. If the difference is a multiple of 9 or divisible by 9, the mistake could be due to transposition of figures.

If error is not found after all this, use detailed tick mark checking for finding the error.

Find the Basic Accounting Terms:

Accounting Antonyms

Trial Balance MCQs:

Rectification of Errors

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Bank Reconciliation Statement is a statement that shows the reasons of difference between the bank balance shown by the Cash Book and the bank balance shown by the Passbook and thus reconciles the difference between the bank balances as per these two books.

Cash book is prepared by the customer whereas Passbook is prepared by the bank. Cash book shows the transactions of a customer with the bank in view of customer whereas passbook shows all these transactions from point of view of the bank.

Cash deposited by a customer in the bank is his asset, but the same cash becomes liability for the bank as it is to be returned by the bank sooner or later. In the same manner, cash withdrawn by a customer from his account reduces his asset and thus reduces the liability of the bank in the same case.

So, it should be understood by the student that every transaction will be recorded in the exactly opposite manner in these two books, i.e. cash Book and passbook.

Difference of bank balances

As these two books are prepared by different parties, there arise the chances of difference of bank balances shown by the cash book and passbook due to the following reasons:

1. Time difference in recording the transactions.

2. Errors made by the customer or bank.

1. Time difference in recording the transactions.

There can be time gap in recording the transactions relating either to payments or receipts.

(a) Cheques issued by the bank but not yet presented for payment.

(b) Cheques paid into the bank but not yet collected.

(c) Direct debits made by the bank on behalf of the customer.

(d) Amounts directly deposited in the bank account.

(e) Interest and dividends collected by the bank.

(f) Direct payments made by the bank on behalf of the customers.

(g) Cheques deposited/bills discounted dishonored.

2. Errors made by the customer or bank.

(a) Errors committed in recording transaction by the customer.

There can be excess/short debit/credit entry made in cash book.

There can be omission/double posting of an entry in the cash book.

(b) Errors committed in recording transactions by the bank.

There can be excess/short debit/credit entry made in passbook.

There can be omission/double posting of an entry in the passbook.

How to prepare Bank Reconciliation Statement?

Practically, Bank Reconciliation Statement is to be prepared by checking the entries made in cash book and passbook, for the same month.

In examinations, basically, there can be two situations:

1. Only one bank balance as per cash book or passbook is given:

In this case the other bank balance is to be calculated and there can be one of the following cases:

(a) When debit/ favorable balance as per cash book is given.

(b) When credit/ favorable balance as per passbook is given.

(c)When credit/ unfavorable/ overdraft balance as per cash book is given.

(d) When debit/ unfavorable/ overdraft balance as per passbook is given.

2. Both the bank balances are given. In this case it becomes easy for the student, as he is guided by the other balance given in the question.

However, in all the above mentioned cases, method of preparing the Bank reconciliation statement is same.

Learn and then Test Yourself...

Method of preparing the Bank reconciliation statement

The post Bank Reconciliation Statement appeared first on Commerceatease - Website for 11th & 12th Commerce.

Steps for preparing Bank Reconciliation Statement:

First step:

After preparing the format given below, start with the given bank balance (as the case may be).

Second step:

Debit BRS in case of Short Debit/ Omitted Debit/ Excess Credit in Cash book /Passbook (as the case may be).

Third step:

Credit BRS in case of Short Credit/ Omitted Credit/ Excess Debit in Cash book /Passbook (as the case may be).

Fourth step:

Calculate the difference of both the sides and put that amount on the side having short total. Give the name of that side having short total to the bank balance as per the other book i.e. Cash book or Passbook (as the case may be).

Summary of Debit Credit Method of Preparing BRS

(a) Start with one bank balance,

(b) Dr. BRS if Cash book or Passbook has not been debited or wrongly credited.

(c) Cr. BRS if Cash book or Passbook has not been credited or wrongly debited.

(d) Calculate the difference, put it on shorter side and give the name of this shorter side to the bank balance of the other book.

Format of Bank Reconciliation Statement 

It is a custom to write Add/Less with the particulars, for that, you can write ‘Add’ the particulars having the amount on the side of the starting balance and ‘Less’ with the particulars having the amount on the opposite side.

The biggest advantage of Debit Credit Method 

You don't have to change the treatment in case of different nature/types of Balance given as per Cash Book or Passbook.

Summary of entries in Bank Reconciliation Statement:

Precautions

1. When entries as per cash book and pass book are compared for reconciliation, balances on the same date should be considered.

2. Only bank column of cash book is to be considered for this comparison with pass book.

Test Your Understanding of BRS:

Method of Preparing BRS

More Cases of Entries in BRS

Following are some more cases where the difference was found in the bank balance as per Cash Book and as per Pass Book.

Bank Reconciliation Statement (BRS)

Learning Games and Activities in Accountancy – Class 11

FunwithAccountancy

The post Preparing BRS by Debit Credit Method | 23 Entries in BRS appeared first on Commerceatease - Website for 11th & 12th Commerce.