General Ledger & Trail Balance


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  • Accounts Payable and Trail Balance
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General Ledger & Trail Balance

  1. 1. General LedgerDefinition:The General ledgercontains all of thebalance sheet account ofan accounting system.The balance sheetaccounts are assets,liabilities and fundbalance accounts valuesin General Ledger areexpressed as debits andcredits.
  2. 2. General LedgerThe ledger page is actually a T-account in a more detailed format. It hasthe account Title & its corresponding account on top. It also has twosides namely; the debit side and the credit side. Each T-account or ledgeraccount 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 debitentry is entered in this column.3. “F” or Folio (Dr Side) - The journal page number from where the debitentry 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 thecredit entry is entered in this column.7. Credit-the amount of the credit entry is entered here.
  3. 3. An example of a Page from the Ledger is as follows;Accounts Receivable Account No.2001Date Explanation Folio Debit (Shs) Date Explaination Folio Credit (Shs)2008 2008Sep-29 Service on Credit 1 500,000 Sep-30 Collection 1 200,000Oct-10 Balance c/d 300,000500,000 500,000Balance b/d 300,000
  4. 4. The Posting Procedure.Step I. Locate the account title used by the journal entry in the generalledger.Step II. Determine if the journal entry is a debit entry or a credit entry; ifit is a debit entry, it should be posted be posted on the debit sideof the located ledger account. If it is a credit entry, it should beposted on the side of the located ledger account.Step III. Record the date of the date of the journal entry in the datecolumn. If the posting is to be done on a fresh page, write the yearon the first line. Then write the month & day of the journal entryon the second line. For succeeding entries, only the day thejournal entry should be written. The month should be writtenonly if it is different from the month of the last entry made.Step IV. Write a brief explanation on the journal entry in the explanationcolumn. It should be on the same line as that of the date.
  5. 5. Contn............Posting ProcedureStep V. Write the amount of the journal entry in the amount column, itshould be on the same line as that of the date & explanation.Step VI. In the folio column; write the page number of the generaljournal page that contains the posted journal entry. It shouldbe on the same line as that of the date, explanation & theamount.Step VII. In the folio column of the general journal, write the accountNo. of the page No. of the ledger account in which the journalentry was posted. The account No. of the page No. should beon the same line as of the journal entry.Step VIII. Do not leave a blame line between entries in the Generalledger.
  6. 6. Illustration1The selected transactions from Tina Cordero Companyduring its first month in business are presented below;Sept 1-Invested $10,000 cash in the BusinessSept 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 forEquipmentSept 30. Withdrew $ 500 cash for personal use
  7. 7. Solution 1
  8. 8. Practical Illustration 2The following Transactions were extracted from the books of Kezia Home of Lights Ltd located onMajestic Plaza, Kampala Uganda one of the leading dealers in supply and sale of Energy Saver Bulbsand Lamps. These transactions were recorded by Faith Mutony- the financial Records Personnelforwarded to KAKS Accounting & Consulting Firm for preparations of required financial statements fordifferent users at every end of month. The following transactions took place during the Month of April2013.Date; Transactions;201331st March The closing capital standing for the sole proprietors business was Ugx. 20,000,000. The Bankstatement balance tallied with this Amount both in Kezia Home of Light ltd’s cash bookprepared by KAKS Accounting & Consulting Firm.1st April Kezia purchased furniture from Young Zhing (U) Ltd and paid Cash Ugx. 2,000,000. Onreceipt No.013463rd April Paid for rent to Kwagalana Properties Ltd who takes the control and Custody of Majestic PlazaComplex. 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 inthe names of Kezia Home of Lights ltd amounting to Ugx. 1,500,000 received from Kato Fredwho had bought Bulbs on credit on March 23rd 2013 worth Ugx.1,850,000.
  9. 9. 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. 10,000,00010th April Sold 120 bulbs for cash Ugx. 1,200,000 to Mr. Maryan Tiwari12th 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. 8,000,00017th April Mr.Natekar (a debtor) returned 10 lamps that were found Damaged18th April Bought Machinery for lamp Testing from M/s Boolani Machinery and paid by a Cheque No.20586 amount of Ugx. 250,00020th April Paid Zhing & Co. Ltd by cheque Ugx. 350,000 cheque No.2059221st April Paid weekly wages for the workers for the ended time period, the weekly wage amount toUgx. 500,00022nd April Received from Mr. Natekar Ugx. 2,000,000
  10. 10. 24th April Purchased Lamp Holders on Credit from Ramesh & Co Ltd for Ugx. 200,000 each costingUgx. 2,00025th April Returned 5 Lamp holders to Ramesh and Co. Ltd26th April Paid UMEME Ltd for electricity consumed during the Month of April 2013 for Ugx. 55,00027th April Received Commission from M/s Orion Traders for giving a trade lead of Ugx. 500,00029th April Kezia withdrew from the Bank Ugx. 180,000 for his monthly home rent paid to hisLandlord at the Residential Suits in KawaalaOther Important Information Revealed by Faith Mutony to KAKS1. Amount of Rent Paid to Kwagalana Properties Ltd included an amount for outstanding Rent paid forthe month of March 2013 for Ugx 1,600,000. KHOL Ltd also paid an advance on the Rent due forthe month of May 2013; the usual monthly rent payment is Ugx 2,000,000 payable before 5th ofevery month.1. On 21st April, 2013, the total amount of workers’ wages paid amount to Ugx. 1,500,000 for the firstthree weeks of April up to that date. The remaining weekly wages payment for the workers was tobe effected on 2nd May, 2013. Required; As a practical and experienced professional Accountant, well trained and conversant withcomputerised accounting software packages such as QuickBooks, Pastel, SAGE or Tally; Post theabove transactions for Kezia Home of Lights Ltd in the Company file (Books of Accounts) createdusing any of the accounting software packages of your choice and generate the final accounts orfinancial reports for the month of April 2013 needed for reporting and decision making purposes tothe Management or Auditing purposes.
  11. 11. The following transactions relate to G Powell’s business for the year ended 31st May 2013;2013May 1 Started business with Shs. 10 Million in the Bank3rd Bought display equipment on credit from Super Furniture Ltd for Shs. 9 million4th Bought office car by cheque Shs. 3 million6th Took Shs. 1 million out of the bank and put it into the cash till being petty cash float14th Returned faulty equipment to Super Furniture Ltd for Shs. 1 million15th 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 ofVAT at 18%) on credit.17th Received cash loan of 7 million from Jarvis at an interest rate of 10% per annum and banked itimmediately.18th Sold goods on credit to D. Kaggwa & Sons Ltd for Shs. 3.5 million19th N. Shambals paid on account Shs. 5 million by cheque21st Paid Super Furniture Ltd on account by cheque Shs. 3 million22nd Paid Rent by Cheque Shs. 500,00023rd Paid Shs. 30,000 for business transport from petty cash25th Paid Super Furniture Ltd the balance after deducting Shs. 150,000 Cash Discount28th 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 fromthose transactions and balance off each ledger account to prepare the trial balance at the end of themonth using any accounting tool appropriate.
  12. 12. TRIAL BALANCE A statement of the balances ofall nominal accounts in adouble-entry ledger, made totest their equality. It follows that at any given point oftime, the posting from Journal, daybooks and cash book to the ledger iscompleted, the debit balancesstanding in all the ledgers includingthe cash book will equal the creditbalances. At the end of the financialperiod (or at some other date) thesebalances are extracted and a scheduleis prepared in journal form is called aTrial Balance.
  13. 13. TRIAL BALANCEA basic rule of double entry accounting isthat for every credit there must be anequal debit amount. From this concept,one can say that the sum of all debitsmust equal the sum of all credits in theaccounting system. If debits do not equalcredits, then an error has been made.The trial balance is a tool for detectingsuch errors.The trial balance is calculated by summingthe balances of all the ledger accounts.The account balances are used becausethe balance summarizes net effect of allthe debits &credits in an account.To calculate the trial balance, construct atable in the following format.See Table below:Trial Balance CalculationsAccount Folio Debits (Shs) Credits (Shs)Account 1 xxxxxAccount 2 xxxxxAccount 3 xxxxxoooAccount 4 xxxxxAccount 5 xxxxxAccount 6 xxxxxoooTotals xxxxxx xxxxxx
  14. 14. STEPS TO PREPARE THE TRIAL BALANCE. The next stage after posting accounts to the ledger is the preparation of aTrial Balance. The debit and credit balances of accounts are entered in thisstatement. 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 ledgeraccounts, location of errors and in the preparation of financial statements.1. For each ledger account- Cash, Accounts payable e.g., total your debitsand credits.-If the Credit total is larger, subtract the debit total from thecredit total to get your ledger account total which gives in the creditcolumn of the trial balance.-If the debit total is larger, subtract the credit total from the debit total toget your ledger account total which goes in the debit column of the trialbalance.-Put the ledger account total in the credit or debit column of your trialbalance (as identified above)2. When you have debit or credit totals for each ledger account add all yourcredit totals to get accredit grand total.2. Add all your debit totals to get debit total. This is your trial balance.
  15. 15. Objects of preparing Trial Balance: 1. It forms the very basis on which final accounts areprepared. 2. It helps in knowing the balance on any particularaccount in the ledger. 3. It is used as a test of arithmetical accuracy. However, a Trial Balance is not a conclusive proof ofabsolute accuracy of the accounts. It does not indicatethe absence of an error. Thus, a non-tallied TrialBalance indicates the presence of book-keeping errors.
  16. 16. UN BALANCED TRIAL BALANCE If you have an un balanced trial balance, then you have an error somewherein the accounting process. Examples of problems that can un balance thetrial 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 wronglyposted 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 offurniture is not posted at all. (iii) Duplication of posting e.g. when debit entry of Shs. 1000 for purchase of furniture hasbeen posted twice in the account. (iv) Wrong side of posting e.g. when debit entry is posted on the credit side or credit entry isposted on the debit side, e.g. when a debit entry of Shs. 10,000 is posted on the creditside, 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 TrialBalance. (vii) Omission of entering the balance of account(Forgetting to include a ledger accountbalance) 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 numberor getting your debits/credits mixed up. Making an error in your journal entry whether using the wrong number or forgetting partof a compound journal entry.
  17. 17. 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 inthe accounting cycle, if the debit & credit do not balance, then you have an error tofind somewhere in your transaction posting process (formal to general ledger to trialbalance). It’s possible to have posting error even if the debits & credits do balance, but that willget found and solved later in the accounting cycle. Examples of problems that wouldnot show up in the trial balance include; (i) Errors or omission; omission to record any transaction (Neglecting to make ajournal 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 errorof 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 ofduplication. (vi) Errors of principle – when the accounting principle is disregarded e.g. a capitalitem as revenue item and vice versa, i.e. purchase of furniture posted toPurchases Account. Putting the credit amount in the debit column and the debit column in the creditcolumn for a particular transactions. (Complete reversal error).
  18. 18. 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 of9. Therefore the difference is a multiple of 9; there are good chances of erroroccurring 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 anamount 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 ofthe error occurring in the totalling. (iv) Ensure that all the balances of ledger accounts have been considered in theTrial Balance. (v) Ensure that there is no omission of recording the balances from the subsidiarybooks or cash book. (vi) Check all the postings and totals. If the difference still persists, it should be transferred temporarily to Suspense Accountand 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 indicationthat one or more errors have been made. (These errors are discussed in detail in). Thetrial balance is the stepping stone for the preparation of financial statements.
  19. 19. LIMITATIONS OF ATRIAL BALANCE 1) A trial balance does not prove that all transactions havebeen made recorded or that the ledger is correct. 2) Numerous errors may exist even though the trialbalances 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 orposting.-Offsetting errors are made in recording the amountof the transaction.
  20. 20.  Have Any QuestionsThankYou.
  21. 21. Illustration 1: From the following particulars prepare a Trial Balance as on30th 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 DoubtfulDebts $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, PurchasesReturns $280, Fixtures & Fittings $550, General Expenses $200, Discountsallowed $520, Discounts Recd. $370.
  22. 22. Illustration 2:Journalise the following transactions and post them to Ledger and balance theaccounts. 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 $1012 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.