Ledger, ledger posting and the trial balance
Financial Accounting · Unit II · Topic 8 of 14 · 5 min read
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Cases checked to exist. Read the judgment before quoting a holding.
Every case cited here has been checked to exist — the citation resolves and names the right parties. The propositions attributed to each case have not been verified line by line against the judgment. Case names link through to the full judgment: read it before quoting a holding in an examination answer, and never carry a proposition from notes into court on trust.
1. The ledger
The ledger is the principal book (book of final entry) containing all the accounts of the business — personal, real and nominal. Entries in the journal and subsidiary books are transferred (posted) to the ledger account concerned, so that all transactions affecting one account are found in one place and its balance can be known.
Posting. For the account debited in the journal, enter on its debit side “To” the name of the account credited; for the account credited, enter on its credit side “By” the name of the account debited. Balancing. Total both sides; write the difference on the shorter side as “By Balance c/d” (or “To Balance c/d”), and bring it down on the opposite side as “To/By Balance b/d”. A debit balance is an asset or expense; a credit balance a liability, capital or income. Nominal accounts are not balanced but closed by transfer to the Trading or P&L Account.
2. Journal and ledger distinguished
| Point | Journal | Ledger |
|---|---|---|
| Nature | Book of original entry | Book of final entry |
| Order | Chronological (by date) | Analytical (by account) |
| Process | Journalising | Posting |
| Narration | Required | Not required |
| Balance | Not balanced | Each account balanced |
| Use | Shows the full transaction | Shows the position of each account; basis of trial balance |
3. Worked problem: ledger, March 2020 (January 2026, 100-mark paper)
Transactions: 1 commenced with cash Rs. 1,00,000; 2 machinery Rs. 30,000; 3 goods Rs. 5,000 (cash); 5 cash sales Rs. 4,000; 6 credit sales to Harish Rs. 3,400; 7 goods from Kavita Rs. 1,920; 10 wages Rs. 3,000; 11 electricity Rs. 3,500; 12 drawings in cash Rs. 3,000.
Cash Account
| Dr | Rs. | Cr | Rs. |
|---|---|---|---|
| Mar 1 To Capital | 1,00,000 | Mar 2 By Machinery | 30,000 |
| Mar 5 To Sales | 4,000 | Mar 3 By Purchases | 5,000 |
| Mar 10 By Wages | 3,000 | ||
| Mar 11 By Electricity | 3,500 | ||
| Mar 12 By Drawings | 3,000 | ||
| Mar 12 By Balance c/d | 59,500 | ||
| 1,04,000 | 1,04,000 |
The other accounts, in short (each is drawn as a T-account in the answer)
| Account | Debit side | Credit side | Balance |
|---|---|---|---|
| Capital | To Balance c/d 1,00,000 | By Cash 1,00,000 | 1,00,000 Cr |
| Machinery | To Cash 30,000 | By Balance c/d 30,000 | 30,000 Dr |
| Purchases | To Cash 5,000; To Kavita 1,920 | By Balance c/d 6,920 | 6,920 Dr |
| Sales | To Balance c/d 7,400 | By Cash 4,000; By Harish 3,400 | 7,400 Cr |
| Harish | To Sales 3,400 | By Balance c/d 3,400 | 3,400 Dr |
| Kavita | To Balance c/d 1,920 | By Purchases 1,920 | 1,920 Cr |
| Wages | To Cash 3,000 | 3,000 Dr | |
| Electricity | To Cash 3,500 | 3,500 Dr | |
| Drawings | To Cash 3,000 | 3,000 Dr |
Trial Balance as on 12 March 2020
| Account | Dr Rs. | Cr Rs. |
|---|---|---|
| Cash | 59,500 | |
| Capital | 1,00,000 | |
| Machinery | 30,000 | |
| Purchases | 6,920 | |
| Sales | 7,400 | |
| Harish | 3,400 | |
| Kavita | 1,920 | |
| Wages | 3,000 | |
| Electricity | 3,500 | |
| Drawings | 3,000 | |
| Total | 1,09,320 | 1,09,320 |
The question asks only for ledger accounts; the trial balance is the proof that the postings are right, and adding it costs five minutes.
4. The trial balance
A trial balance is a statement, prepared on a particular date, listing the debit and credit balances of all ledger accounts (including the cash book), to test the arithmetical accuracy of the books. Under double entry the two totals must agree.
Objectives: (1) to check the arithmetical accuracy of posting and balancing; (2) to have a summary of all ledger balances in one place; (3) to provide the basis for the final accounts; (4) to help locate errors.
Methods: the balance method (balances only — the usual one, used above); the total method (totals of both sides of each account); and the compound method (both).
Errors not disclosed even when the trial balance agrees: errors of omission (a transaction left out altogether); errors of commission by posting to the wrong account of the right side (Ram instead of Rama); errors of principle (purchase of furniture debited to Purchases); compensating errors; and an original wrong amount in the book of prime entry. Hence agreement is proof of arithmetical accuracy only, not of correctness.
Format with ten items: the table in section 3 has ten. For the essay version, use items such as Capital, Drawings, Purchases, Sales, Debtors, Creditors, Furniture, Rent, Cash, Bank loan, putting assets, expenses, losses and drawings on the debit side and capital, liabilities, incomes and gains on the credit side.
5. Trial balance and balance sheet distinguished
| Point | Trial balance | Balance sheet |
|---|---|---|
| Purpose | Tests arithmetical accuracy | Shows financial position |
| Contents | All ledger balances, incl. nominal | Only assets, liabilities and capital |
| Stage | Before final accounts | Last of the final accounts |
| Columns | Debit and credit | Liabilities and assets |
| Closing stock | Not usually shown | Shown as an asset |
| Legal need | Not required by law | Required (section 129, Companies Act 2013, for companies) |
How this is examined
The ledger problem is a 16-mark question in the 100-mark paper; the trial balance essay is 16 marks there and a 6-mark note in the 80-mark paper. In the ledger problem draw every account as a separate T-account with dates, balance each, and finish with the trial balance. In the essay, give the definition, objectives, methods, the errors it does not catch, and a format with at least ten items that totals.
Now try the real questions: Financial Accounting past question papers.