Features of Trial Balance

The main features of the trial balance are

It is tabulation of balances of all accounts.

It classifies accounts into two classes

a) Accounts having debit balances

b) Accounts having credit balances

It refers to a specified date

LEDGER BALANCING (IE) EXAMPLE

LEDGER BALANCING IE EXAMPLE

FOR OLD BUSINESS

The following are some of the balancing appearing in the ledger of trader on 31-12-1995. Compute gross profit taking and closing stock as Rs 12000.

Opening stock 1-1-95                                             - 6000

Purchases                                                                - 48000

Purchases returns                                                    - 4000

Sales                                                                        - 63200

Sales returns                                                            - 1600

Wages                                                                      - 4000

Solution :

Cost of goods sold = Opening stock + net purchases + Wages – Closing stock

= Rs.6000 + 44000 + 4000 – 12000

= Rs 42000

Net sales = Sales – Sales Returns

= Rs 63,200 - 1600

= Rs 61,600

Gross Profit = Net Sales – Cost of goods sold

= Rs 61,600 – 42,000

= Rs 19,600

GOLDEN RULES AND SIGNIFICANCE OF OF DEBIT AND CREDIT BALANCES

SIGNIFICANCE OF OF DEBIT AND CREDIT BALANCES(GOLDEN RULES)

All accounts fall into three categories

1 Personal accounts

2 Real accounts

3 Nominal accounts

Personal accounts:

if a personal account shows debit balance

the person is a debtor to the business concern

if a personal account shows credit balance

the person is the creditor to the business concern

Real accounts

Real accounts show debit balance. If at any time, there is credit balance in a real account, it represents profit on sale of asset. The profit should be transferred to profit and loss account.

Nominal accounts

if a nominal accounts shows debit balance,it relates to an item of expenditure or loss

if a nominal accounts shows credit balance . it relates to an item of gain or income.

Balancing – Meaning

Balancing

After the ledger posting the next stage is “balancing” the accounts , we have seen that account is debited whenever its receives the benefit of the transaction and is credited when ever it gives the benefit of the transaction,Generally both the sides of account will not be equal.Either the debit side total may be more than the credit side total or the credit side total may be more than the debit side

total.An account is said to show a debit balance if debit side is heavier and is said to show a credit balance if the credit side is heavier.The process of showing the debit or credit balance of a particular account ' or ' striking the balance '

The difference between the total debits and the total credits of an account is called the balance.

'ie',,,, the net result of debits and credits in an account is the balance.

Balancing may be defined as the process of finding the difference between total debits and total credits of an account and writing of the difference in the lighter side so that the total of two sides becomes equal.

form of journal, contents of journal entry

Form of the journal

In actual practice, the journal is so ruled that when each transaction is passed thourgh its different columns.it includes the following elements.

Date of transaction

Name ofthe account to be debited

Amount to be debited

Name of the account to be credited

Amount to be credited

Posting references

Narration or explanation

DIFFERENCES BETWEEN THE JOURNAL AND THE LEDGER

JOURNAL	LEDGER
It is subsidiary book	It is main or principle book
This is book of original	This is book of final entry
Its is daily record transactions are recorded in this book in the chronological order	Posting is done periodically may be weekly fortnighty or monthly
Entering the transaction in the journal is called journalising	The act of recording entries in ledger called posting
Journal gives information in the form of entries	Ledger contains information in the form of accounts

Differences between an inTrade bill and financial bill

Trade bill	Financial bill
This bill accepted for value received	This bill accepted for no value received
This bill need not necessarily be discounted	This bill must necessarily be discounted
In this case drawer is the creditor and drawee is debtor	In this case drawer is the debtor and drawee is creditor
If this bill is discounted the discounting charges are to be borne by the drawer or thr endorsee	In case of mutual accommodation bill the discounting charges are to be borne by the drawer and drawee in a certain ratio
These bills are usually drawn and accepted for discharge of mutual indeptedness	These bills are drawn and accepted for raising short term funds required by business man
These bills originate from a dept or from a commercial transection	These bills do not originate from a dept or from a commercial transection