Previous - Books of Original Entry
A ledger is often defined as a book of accounts and it is the principal book for recording transactions measured in terms of a monetary unit of account by account type, with debits and credits in separate columns and a beginning monetary balance and ending monetary balance for each account. A trial balance is a listing of the account names and their balances from the general ledger. The debit balance amounts are in one column and the credit balance amounts are in the adjacent column. If the totals of the two columns are equal, accountants are comforted in knowing that the general ledger has its debits equal to credits. The trial balance is an internal accounting report that merely documents the equality of debits and credits. It is not a financial statement. The purpose of preparing a trial balance is to check the mathematical accuracy of the bookkeeping. It is also useful for making it easier to prepare the final accounts such as the trading and profit and loss account and the balance sheet.
| "$\text{Sample of a Trial Balance}$" | ||
| "$\text{Debit}$" | "$\text{Credit}$" | |
| "$\text{Premises}$" | "$\text{40,000}$" | |
| "$\text{Fixtures and Fittings}$" | "$\text{10,000}$" | |
| "$\text{Mortgage on Premises}$" | "$\text{15,000}$" | |
| "$\text{Purchase and Sales}$" | "$\text{40,950}$" | "$\text{78,500}$" |
| "$\text{Debtors and Creditors}$" | "$\text{3,400}$" | "$\text{9,000}$" |
| "$\text{Motor Vehicles}$" | "$\text{21,000}$" | |
| "$\text{Return Inwards and Outwards}$" | "$\text{200}$" | "$\text{300}$" |
| "$\text{Commission Expenses and Revenue}$" | "$\text{2,700}$" | "$\text{1,040}$" |
| "$\text{Carriage Inwards}$" | "$\text{1,750}$" | |
| "$\text{Stock at Beginning of Year}$" | "$\text{8,000}$" | |
| "$\text{Carriage Outwards}$" | "$\text{3,260}$" | |
| "$\text{Wages}$" | "$\text{5,900}$" | |
| "$\text{Insurance}$" | "$\text{350}$" | |
| "$\text{Rent}$" | "$\text{3,000}$" | |
| "$\text{Bank}$" | "$\text{3,650}$" | |
| "$\text{Cash}$" | "$\text{840}$" | |
| "$\text{110,490}$" | ||
| "$\text{Capital}$" | "$\text{28,560}$" | |
| "$\text{Drawings}$" | "$\text{700}$" | |
| "$\text{139,050}$" | "$\text{139,050}$" | |
Stock at end of year was $10,000.
Prepare the trading and profit, and loss account and the balance sheet.
| "$\text{Trading and Profit and Loss Account as at the end of the month}$" | |||
| "$\text{A. Sales}$" | "$\text{78,500}$" | ||
| "$\text{Less Inward Return}$" | "$\text{(200)}$" | ||
| "$\text{Net Sales}$" | "$\text{78,300}$" | ||
| "$\text{Less Cost of Goods Sold}$" | |||
| "$\text{Opening Stock}$" | "$\text{8,000}$" | ||
| "$\text{Add Purchases}$" | "$\text{40,950}$" | ||
| "$\text{Add Carriage Inwards}$" | "$\text{1,750}$" | ||
| "$\text{B. Gross Purchases}$" | "$\text{42,700}$" | ||
| "$\text{Less Return Inwards}$" | "$\text{(300)}$" | ||
| "$\text{Net Purchases}$" | "$\text{42,400}$" | ||
| "$\text{Cost of Goods Available for Sale}$" | "$\text{50,400}$" | ||
| "$\text{Less Closing Stock}$" | "$\text{(10,000)}$" | ||
| "$\text{Cost of Goods Sold}$" | "$\text{(40,400)}$" | ||
| "$\text{GROSS PROFIT}$" | "$\text{37,900}$" | ||
| "$\text{Add Commission Received}$" | "$\text{1,040}$" | ||
| "$\text{Rent Received}$" | "$\text{3,000}$" | "$\text{3,000}$" | |
| "$\text{41,940}$" | |||
| "$\text{Less Expenses}$" | |||
| "$\text{Commission Expense}$" | "$\text{2,700}$" | ||
| "$\text{Carriage Outward}$" | "$\text{3,260}$" | ||
| "$\text{Wages}$" | "$\text{5,900}$" | ||
| "$\text{Insurance}$" | "$\text{350}$" | "$\text{(12,210)}$" | |
| "$\text{NET PROFIT}$" | "$\text{29,730}$" | ||
| "$\text{Balance Sheet as at the end of the month of July}$" | |||
| "$\text{C. FIXED ASSETS}$" | "$\text{Cost}$" | "$\text{Account depr}$" | "$\text{NBV}$" |
| "$\text{Premises}$" | "$\text{40,000}$" | "$\text{-}$" | "$\text{40,000}$" |
| "$\text{Fixtures and Fittings}$" | "$\text{10,000}$" | "$\text{-}$" | "$\text{10,000}$" |
| "$\text{Motor Vehicles}$" | "$\text{21,000}$" | "$\text{-}$" | "$\text{21,000}$" |
| "$\text{Opening Stock}$" | "$\text{71,000}$" | "$\text{ }$" | "$\text{71,000}$" |
| "$\text{CURRENT ASSETS}$" | |||
| "$\text{Stock}$" | "$\text{10,000}$" | ||
| "$\text{Debtors}$" | "$\text{3,400}$" | ||
| "$\text{Cash}$" | "$\text{840}$" | ||
| "$\text{14,240}$" | |||
| "$\text{LESS CURRENT LIABILITIES }$" | |||
| "$\text{Creditors}$" | "$\text{9,000}$" | ||
| "$\text{Bank Overdraft}$" | "$\text{3,650}$" | ||
| "$\text{(12,650)}$" | |||
| "$\text{Working Capital}$" | "$\text{1,590}$" | ||
| "$\text{72,590}$" | |||
| "$\text{FINANCED BY:}$" | |||
| "$\text{OWNER’S EQUITY}$" | |||
| "$\text{Capital}$" | "$\text{28,560}$" | ||
| "$\text{Add Net Profit}$" | "$\text{29,730}$" | ||
| "$\text{Insurance}$" | "$\text{58,290}$" | ||
| "$\text{Less Drawings}$" | "$\text{(700)}$" | "$\text{57,590}$" | |
| "$\text{LONGTERM LIABILITIES}$" | |||
| "$\text{Mortgage on Premises}$" | "$\text{15,000}$" | ||
| "$\text{72,590}$" | |||
| "$\text{Type of Account}$" | "$\text{Closing of the Account}$" |
| "$\text{Personal Account}$" | |
| "$\text{Debtors}$" | "$\text{Balance c/d}$" |
| "$\text{Creditors}$" | "$\text{Balance b/d}$" |
| "$\text{Real Accounts and Capital}$" | |
| "$\text{Assets}$" | "$\text{Balance c/d and b/d}$" |
| "$\text{Nominal Accounts}$" | |
| "$\text{Expenses}$" | "$\text{Transfer to Profits And Loss Account}$" |
| "$\text{Revenues}$" | "$\text{Transfer to Profits And Loss Account}$" |
| "$\text{Stock}$" | |
| "$\text{Purchases}$" | "$\text{Transfer to Trading Account}$" |
| "$\text{Sales}$" | "$\text{Transfer to Trading Account}$" |
| "$\text{Returns Inwards}$" | "$\text{Transfer to Trading Account}$" |
| "$\text{Returns Outwards}$" | "$\text{Transfer to Trading Account}$" |
The account balances for a period are entered in the Trial balance as follows:
| "$\text{Category of Account}$" | "$\text{Account Balance}$" |
| "$\text{Assets}$" | "$\text{Debit}$" |
| "$\text{Liabilities}$" | "$\text{Credit}$" |
| "$\text{Income/Revenue}$" | "$\text{Credit}$" |
| "$\text{Capital}$" | "$\text{Credit}$" |
| "$\text{Expenses}$" | "$\text{Debit}$" |