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General Ledger & Trail Balance
1.
2. General Ledger
Definition:
The General ledger
contains all of the
balance sheet account of
an accounting system.
The balance sheet
accounts are assets,
liabilities and fund
balance accounts values
in General Ledger are
expressed as debits and
credits.
3. General Ledger
The ledger page is actually a T-account in a more detailed format. It has
the account Title & its corresponding account on top. It also has two
sides namely; the debit side and the credit side. Each T-account or ledger
account has the following columns.
1. Date (Dr Side)-The date of the debit entry is entered in this column.
2. Explanation /Description (Dr Side) - A brief explanation of the debit
entry is entered in this column.
3. “F” or Folio (Dr Side) - The journal page number from where the debit
entry was taken is entered in this column.
4. Debit- The amount of the debit entry is entered in this column.
5. Date-(Cr side) the date of the credit entry is entered in this column.
6. Explanation (Details/particulars)-(credit side).A brief explanation of the
credit entry is entered in this column.
7. Credit-the amount of the credit entry is entered here.
4. An example of a Page from the Ledger is as follows;
Accounts Receivable Account No.2001
Date Explanation Folio Debit (Shs) Date Explaination Folio Credit (Shs)
2008 2008
Sep-29 Service on Credit 1 500,000 Sep-30 Collection 1 200,000
Oct-10 Balance c/d 300,000
500,000 500,000
Balance b/d 300,000
5. The Posting Procedure.
Step I. Locate the account title used by the journal entry in the general
ledger.
Step II. Determine if the journal entry is a debit entry or a credit entry; if
it is a debit entry, it should be posted be posted on the debit side
of the located ledger account. If it is a credit entry, it should be
posted on the side of the located ledger account.
Step III. Record the date of the date of the journal entry in the date
column. If the posting is to be done on a fresh page, write the year
on the first line. Then write the month & day of the journal entry
on the second line. For succeeding entries, only the day the
journal entry should be written. The month should be written
only if it is different from the month of the last entry made.
Step IV. Write a brief explanation on the journal entry in the explanation
column. It should be on the same line as that of the date.
6. Contn............Posting Procedure
Step V. Write the amount of the journal entry in the amount column, it
should be on the same line as that of the date & explanation.
Step VI. In the folio column; write the page number of the general
journal page that contains the posted journal entry. It should
be on the same line as that of the date, explanation & the
amount.
Step VII. In the folio column of the general journal, write the account
No. of the page No. of the ledger account in which the journal
entry was posted. The account No. of the page No. should be
on the same line as of the journal entry.
Step VIII. Do not leave a blame line between entries in the General
ledger.
7. Illustration1
The selected transactions from Tina Cordero Company
during its first month in business are presented below;
Sept 1-Invested $10,000 cash in the Business
Sept 5- Purchased Equipment for $ 12,000 paying
$5,000 in Cash and the Balance on account.
Sept 25- Paid $ 3,000 cash on balance owed for
Equipment
Sept 30. Withdrew $ 500 cash for personal use
9. Practical Illustration 2
The following Transactions were extracted from the books of Kezia Home of Lights Ltd located on
Majestic Plaza, Kampala Uganda one of the leading dealers in supply and sale of Energy Saver Bulbs
and Lamps. These transactions were recorded by Faith Mutony- the financial Records Personnel
forwarded to KAKS Accounting & Consulting Firm for preparations of required financial statements for
different users at every end of month. The following transactions took place during the Month of April
2013.
Date; Transactions;
2013
31st March The closing capital standing for the sole proprietors business was Ugx. 20,000,000. The Bank
statement balance tallied with this Amount both in Kezia Home of Light ltd’s cash book
prepared by KAKS Accounting & Consulting Firm.
1st April Kezia purchased furniture from Young Zhing (U) Ltd and paid Cash Ugx. 2,000,000. On
receipt No.01346
3rd April Paid for rent to Kwagalana Properties Ltd who takes the control and Custody of Majestic Plaza
Complex. Paid by cheque No.20561 DFCU Bank market street branch amounting to Ugx.
5,000,000.
5th April Made a cash deposit to the Bank Account No. 01441090367295, dfcu market street branch in
the names of Kezia Home of Lights ltd amounting to Ugx. 1,500,000 received from Kato Fred
who had bought Bulbs on credit on March 23rd 2013 worth Ugx.1,850,000.
10. 6th April Bought 200 Bulbs each at the cost of Ugx. 5,500 for cash from M/s Shamir Jain & Co.
8th April M/s Ramdas & Bros Supplied 2,000 bulbs on credit for Ugx. 10,000,000
10th April Sold 120 bulbs for cash Ugx. 1,200,000 to Mr. Maryan Tiwari
12th April Purchased lamps on credit from Zhing & Co. Ltd for Ugx. 600,000 each costing Ugx. 2,000.
He was given a Trade Discount of 20%.
13th April Deposited to the Kezia Home of Lights Ltd’s Account a total amount of Ugx. 2,500,000.
15th April Purchased Stationery for Ugx. 150,000 from Sayyed Stationery Mart.
16th April Sold 160 Lamps on credit to Mr. Natekar for Ugx. 8,000,000
17th April Mr.Natekar (a debtor) returned 10 lamps that were found Damaged
18th April Bought Machinery for lamp Testing from M/s Boolani Machinery and paid by a Cheque No.
20586 amount of Ugx. 250,000
20th April Paid Zhing & Co. Ltd by cheque Ugx. 350,000 cheque No.20592
21st April Paid weekly wages for the workers for the ended time period, the weekly wage amount to
Ugx. 500,000
22nd April Received from Mr. Natekar Ugx. 2,000,000
11. 24th April Purchased Lamp Holders on Credit from Ramesh & Co Ltd for Ugx. 200,000 each costing
Ugx. 2,000
25th April Returned 5 Lamp holders to Ramesh and Co. Ltd
26th April Paid UMEME Ltd for electricity consumed during the Month of April 2013 for Ugx. 55,000
27th April Received Commission from M/s Orion Traders for giving a trade lead of Ugx. 500,000
29th April Kezia withdrew from the Bank Ugx. 180,000 for his monthly home rent paid to his
Landlord at the Residential Suits in Kawaala
Other Important Information Revealed by Faith Mutony to KAKS
1. Amount of Rent Paid to Kwagalana Properties Ltd included an amount for outstanding Rent paid for
the month of March 2013 for Ugx 1,600,000. KHOL Ltd also paid an advance on the Rent due for
the month of May 2013; the usual monthly rent payment is Ugx 2,000,000 payable before 5th of
every month.
1. On 21st April, 2013, the total amount of workers’ wages paid amount to Ugx. 1,500,000 for the first
three weeks of April up to that date. The remaining weekly wages payment for the workers was to
be effected on 2nd May, 2013.
Required;
As a practical and experienced professional Accountant, well trained and conversant with
computerised accounting software packages such as QuickBooks, Pastel, SAGE or Tally; Post the
above transactions for Kezia Home of Lights Ltd in the Company file (Books of Accounts) created
using any of the accounting software packages of your choice and generate the final accounts or
financial reports for the month of April 2013 needed for reporting and decision making purposes to
the Management or Auditing purposes.
12. The following transactions relate to G Powell’s business for the year ended 31st May 2013;
2013
May 1 Started business with Shs. 10 Million in the Bank
3rd Bought display equipment on credit from Super Furniture Ltd for Shs. 9 million
4th Bought office car by cheque Shs. 3 million
6th Took Shs. 1 million out of the bank and put it into the cash till being petty cash float
14th Returned faulty equipment to Super Furniture Ltd for Shs. 1 million
15th Bought goods for Resale by cheque shs 9 million.
16th After Registering for VAT sold to N. Shambals goods for Shs. 10,620,000 (inclusive of
VAT at 18%) on credit.
17th Received cash loan of 7 million from Jarvis at an interest rate of 10% per annum and banked it
immediately.
18th Sold goods on credit to D. Kaggwa & Sons Ltd for Shs. 3.5 million
19th N. Shambals paid on account Shs. 5 million by cheque
21st Paid Super Furniture Ltd on account by cheque Shs. 3 million
22nd Paid Rent by Cheque Shs. 500,000
23rd Paid Shs. 30,000 for business transport from petty cash
25th Paid Super Furniture Ltd the balance after deducting Shs. 150,000 Cash Discount
28th Brought in further cash from his own Resources of Shs. 4 million and banked it intact.
30th N. Shambals returned goods worth Shs. 1,180,000 (Inclusive of VAT)
31st N.Shambals paid the balance by cheque having deducted Shs. 200,000 Cash Discount.
As an Accountant, You are supposed to record the Ledger account entries in the books of G. Powell from
those transactions and balance off each ledger account to prepare the trial balance at the end of the
month using any accounting tool appropriate.
13. TRIAL BALANCE
A statement of the balances of
all nominal accounts in a
double-entry ledger, made to
test their equality.
It follows that at any given point of
time, the posting from Journal, day
books and cash book to the ledger is
completed, the debit balances
standing in all the ledgers including
the cash book will equal the credit
balances. At the end of the financial
period (or at some other date) these
balances are extracted and a schedule
is prepared in journal form is called a
Trial Balance.
14. TRIAL BALANCE
A basic rule of double entry accounting is
that for every credit there must be an
equal debit amount. From this concept,
one can say that the sum of all debits
must equal the sum of all credits in the
accounting system. If debits do not equal
credits, then an error has been made.
The trial balance is a tool for detecting
such errors.
The trial balance is calculated by summing
the balances of all the ledger accounts.
The account balances are used because
the balance summarizes net effect of all
the debits &credits in an account.
To calculate the trial balance, construct a
table in the following format.
See Table below:
Trial Balance Calculations
Account Folio Debits (Shs) Credits (Shs)
Account 1 xxxxx
Account 2 xxxxx
Account 3 xxxxx
o
o
o
Account 4 xxxxx
Account 5 xxxxx
Account 6 xxxxx
o
o
o
Totals xxxxxx xxxxxx
15. STEPS TO PREPARE THE TRIAL BALANCE.
The next stage after posting accounts to the ledger is the preparation of a
Trial Balance. The debit and credit balances of accounts are entered in this
statement. The total of the debit and the total of the credit side must agree.
An agreement indicates reasonable accuracy of the accounting work.
The trial balance helps in ascertaining arithmetical accuracy of the ledger
accounts, location of errors and in the preparation of financial statements.
1. For each ledger account- Cash, Accounts payable e.g., total your debits
and credits.
-If the Credit total is larger, subtract the debit total from the
credit total to get your ledger account total which gives in the credit
column of the trial balance.
-If the debit total is larger, subtract the credit total from the debit total to
get your ledger account total which goes in the debit column of the trial
balance.
-Put the ledger account total in the credit or debit column of your trial
balance (as identified above)
2. When you have debit or credit totals for each ledger account add all your
credit totals to get accredit grand total.
2. Add all your debit totals to get debit total. This is your trial balance.
16. Objects of preparing Trial Balance:
1. It forms the very basis on which final accounts are
prepared.
2. It helps in knowing the balance on any particular
account in the ledger.
3. It is used as a test of arithmetical accuracy.
However, a Trial Balance is not a conclusive proof of
absolute accuracy of the accounts. It does not indicate
the absence of an error. Thus, a non-tallied Trial
Balance indicates the presence of book-keeping errors.
17. UN BALANCED TRIAL BALANCE
If you have an un balanced trial balance, then you have an error somewhere
in the accounting process. Examples of problems that can un balance the
trial balance include; (Errors disclosed by the Trial Balance)
(i) Wrong posting of entries i.e. A debit entry of Shs. 1,000 for purchase of furniture wrongly
posted as Shs. 100 in the account.
(ii) Omission of posting of debit or credit e.g. A debit entry of Shs. 10,000 for purchase of
furniture is not posted at all.
(iii) Duplication of posting e.g. when debit entry of Shs. 1000 for purchase of furniture has
been posted twice in the account.
(iv) Wrong side of posting e.g. when debit entry is posted on the credit side or credit entry is
posted on the debit side, e.g. when a debit entry of Shs. 10,000 is posted on the credit
side, i.e. when debit entry of Shs. 10000 is posted on the credit side and vice versa.
(v) Errors in casting/adding the totals of debit or credit side of the Trial Balance.
(vi) Wrong transfer of balances (Writing the wrong ledger account balances ) in the Trial
Balance.
(vii) Omission of entering the balance of account(Forgetting to include a ledger account
balance) in the Trial Balance.
(viii) Balance of cash book omitted to be recorded in the Trial Balance.
(ix) Wrong balancing of account (Miscalculating the ledger account totals).
(x) Errors in the total or posting or entries of subsidiary book.
(xi) Wrong carry forward of balance in the various books, i.e. day books, cash book, etc.
Posting a journal entry incorrectly to the general ledger whether using the wrong number
or getting your debits/credits mixed up.
Making an error in your journal entry whether using the wrong number or forgetting part
of a compound journal entry.
18. BALANCED TRIAL BALANCE
If all of your journal entries were posted properly (and error-free) in the general ledger,
your debit grand total and credit grand total should balance, and you can move on in
the accounting cycle, if the debit & credit do not balance, then you have an error to
find somewhere in your transaction posting process (formal to general ledger to trial
balance).
It’s possible to have posting error even if the debits & credits do balance, but that will
get found and solved later in the accounting cycle. Examples of problems that would
not show up in the trial balance include;
(i) Errors or omission; omission to record any transaction (Neglecting to make a
journal entry at all).
(ii) Posting of wrong amount both debit and credit side of the account
(iii) Error made in posting of debit or credit entry is compensated by an identical error
of equal amount. These errors are known as compensating errors.
(iv) Errors made in posting a transaction on the correct side of wrong account.
(v) Recording a transaction twice erroneously. These are known as errors of
duplication.
(vi) Errors of principle – when the accounting principle is disregarded e.g. a capital
item as revenue item and vice versa, i.e. purchase of furniture posted to
Purchases Account.
Putting the credit amount in the debit column and the debit column in the credit
column for a particular transactions. (Complete reversal error).
19. Methods of locating errors in Trial Balance:
The following are some of the ways of detecting errors in the Trial Balance –
(i) When digits are wrongly interchanged — it causes the error to occur in multiples of
9. Therefore the difference is a multiple of 9; there are good chances of error
occurring in transposition of digits, i.e. when 97 is recorded as 79.
(ii) When the difference is an even number divide by 2 and check whether such an
amount is wrongly entered on the wrong side of debit or credit.
(iii) If the difference is a multiple of 10 or 100 or 1000, then there are chances of
the error occurring in the totalling.
(iv) Ensure that all the balances of ledger accounts have been considered in the
Trial Balance.
(v) Ensure that there is no omission of recording the balances from the subsidiary
books or cash book.
(vi) Check all the postings and totals.
If the difference still persists, it should be transferred temporarily to Suspense Account
and on locating the errors at a future date, the Suspense Account can be closed.
Where the debit and the credit totals of the trial balance do not agree it is an indication
that one or more errors have been made. (These errors are discussed in detail in). The
trial balance is the stepping stone for the preparation of financial statements.
20. LIMITATIONS OF ATRIAL BALANCE
1) A trial balance does not prove that all transactions have
been made recorded or that the ledger is correct.
2) Numerous errors may exist even though the trial
balances agree.
3) The trial balance may balance even when;
-A transaction is not journalized.
-A correct journal entry is not journalized.
-A journal entry is posted twice.
-Incorrect accounts are used in journalizing or
posting.
-Offsetting errors are made in recording the amount
of the transaction.
22. Illustration 1:
From the following particulars prepare a Trial Balance as on
30th September 2011:
Stock 1st October 2011 $1,380, Debtors $2,960, Creditors
$1,580, Capital Account
1st Oct. 2011 $ 4,100, Drawings $1,200, Bills Receivable $ 770,
Bad Debt written off $190, Provision for Bad and Doubtful
Debts $160, Bills Payable $470, Wages & Salaries $1,920,
Purchases $6,580, Sales $10,670, Bank $580, Cash $40,
Rent, Rates & Insurance $330, Sales Returns $410, Purchases
Returns $280,
Fixtures & Fittings $550, General Expenses $200, Discounts
allowed $520, Discounts Recd. $370.
23. Illustration 2:
Journalise the following transactions and post them to Ledger and balance the
accounts. Also prepare a Trial Balance as on 30th April 2013.
2013.
April 1 Ravi started business with $15,000 of which $4,000 were borrowed at 15%
p.a. from Shri Sashi.
2 Purchased goods worth $4,000 from Anant at 2% trade discount.
3 Cash sales to Madan $ 1,200.
6 Credit sales to Salvi $2,000 less trade discount 2%.
9 Paid cash $1,950 to Anant and received discount of $10
12 Received $1,950 from Salvi in full settlement of his dues.
14 Returned goods of the price of $100 to Anant.
16 Paid into bank $5,000.
18 Issued a cheque for $1,000 to Anant on account.
19 Purchased goods of $2,000 from Anant.
22 Sold foods costing $1,000 at 25% profit to Ratan.
22 Received commission $800 from S & Co.
24 Received a cheque for $395 from Ratan & he was allowed discount $5.
25 Ratan returned goods of $50.
30 Paid Interest on loan $50 to Sashi.
30 Paid Salaries $2,000 out of which $1,200 paid by cheque.
30 Paid into Bank $500.
30 Paid Office Rent by cheque $300.