📑 Topics on this page (Jump to Topic):
📌 1. Ledger & Posting
- The ledger is the principal book (book of final entry) containing all accounts. Transferring from journal to ledger = posting.
- Debit-side entries begin with "To" and credit-side entries with "By"; the particulars show the other account.
- Balancing: total of bigger side − total of smaller side = difference, written on the smaller side as "Balance c/d"; brought down next period as "Balance b/d".
| Cash Account | |||||
|---|---|---|---|---|---|
| Dr. Date | Particulars | ₹ | Cr. Date | Particulars | ₹ |
| 1 Apr | To Capital A/c | 1,00,000 | 10 Apr | By Furniture A/c | 25,000 |
| 20 Apr | To Sales A/c | 12,000 | 30 Apr | By Salaries A/c | 8,000 |
| 30 Apr | By Balance c/d | 79,000 | |||
| Account | Usual balance |
|---|---|
| Assets, expenses, losses, drawings | Debit |
| Liabilities, capital, incomes, gains, provisions | Credit |
| Nominal accounts | Not balanced; closed to P&L/Trading A/c |
📌 2. Trial Balance
A trial balance is a statement (not an account) of all debit and credit balances of ledger accounts. It is prepared as on a date and checks arithmetical accuracy.
| Method | Description |
|---|---|
| Balance method | Each account's balance is listed — most common |
| Total method | Totals of both sides of each account |
| Total-and-balance method | Combination of both |
| Balance (in trial balance) | Dr. (₹) | Cr. (₹) |
|---|---|---|
| Capital | — | 1,00,000 |
| Cash | 79,000 | — |
| Furniture | 25,000 | — |
| Sales | — | 12,000 |
| Salaries | 8,000 | — |
| Total | 1,12,000 | 1,12,000 |
- Closing stock usually does not appear in the trial balance (it is given as an adjustment); opening stock appears on the debit side.
- If the trial balance does not agree, the difference is put temporarily in a Suspense A/c.
📌 3. Trial Balance & Errors
| Error | Effect on trial balance |
|---|---|
| Complete omission of a transaction | Not revealed |
| Error of principle (repairs to Machinery A/c) | Not revealed |
| Compensating errors | Not revealed |
| Right amount, wrong person's account, correct side | Not revealed |
| Wrong amount in the book of original entry | Not revealed |
| One-sided omission / posting to wrong side | Revealed |
| Casting or balancing error | Revealed |
⚠️ Exam Traps:
- An agreed trial balance is not conclusive proof that the books are free from errors.
- Posting to the wrong side creates a difference of twice the amount (₹500 wrong side = ₹1,000 difference).
- A difference divisible by 9 hints at transposition of figures (e.g. 63→36).
💡 Memory Tip: "PEACO" errors not revealed: Principle, Entire omission, Amount wrong in original book, Compensating, Other (wrong) account.
📌 4. Worked Examples
Example: preparing a trial balance from balances
| Account | Dr. (₹) | Cr. (₹) |
|---|---|---|
| Capital | — | 50,000 |
| Furniture | 20,000 | — |
| Machinery | 9,000 | — |
| Cash | 15,000 | — |
| Purchases | 60,000 | — |
| Sales | — | 80,000 |
| Debtors | 25,000 | — |
| Creditors | — | 18,000 |
| Salaries | 8,000 | — |
| Rent | 5,000 | — |
| Drawings | 6,000 | — |
| Total | 1,48,000 | 1,48,000 |
Rule: assets, expenses, losses and drawings go on the debit side; capital, liabilities, income and gains on the credit side. The totals agree, proving arithmetical accuracy (errors of principle or compensating errors may still exist).
📌 5. Practice MCQs
📝 Practice MCQs (prepared by SF Prep — not PYQs)
Q1. The ledger is called the: Practice
Correct answer: (D)
All accounts finally sit in the ledger.
All accounts finally sit in the ledger.
Q2. Transferring entries from the journal to the ledger is called: Practice
Correct answer: (A)
Posting = journal → ledger.
Posting = journal → ledger.
Q3. A trial balance is a: Practice
Correct answer: (B)
It is a list of ledger balances.
It is a list of ledger balances.
Q4. The main purpose of a trial balance is to check: Practice
Correct answer: (A)
It checks that total debits equal total credits.
It checks that total debits equal total credits.
Q5. Expense accounts usually show a: Practice
Correct answer: (C)
Expenses are recorded on the debit side.
Expenses are recorded on the debit side.
Q6. Which of the following has a credit balance? Practice
Correct answer: (D)
Purchase returns reduce purchases and carry a credit balance.
Purchase returns reduce purchases and carry a credit balance.
Q7. When the trial balance does not agree, the difference is put in: Practice
Correct answer: (B)
The suspense account is closed when errors are found.
The suspense account is closed when errors are found.
Q8. Which error is NOT revealed by a trial balance? Practice
Correct answer: (B)
In an error of principle, debits and credits stay equal.
In an error of principle, debits and credits stay equal.
Q9. ₹700 was posted to the wrong side of the correct account. The trial balance difference is: Practice
Correct answer: (C)
Wrong side = twice the amount.
Wrong side = twice the amount.
Q10. An agreed trial balance means: Practice
Correct answer: (D)
Many errors do not affect the trial balance.
Many errors do not affect the trial balance.
Q11. Closing stock usually does not appear in the trial balance because: Practice
Correct answer: (A)
Closing stock is accounted after the trial balance is drawn.
Closing stock is accounted after the trial balance is drawn.
Q12. Entries on the credit side of an account usually start with: Practice
Correct answer: (D)
Debit side "To", credit side "By".
Debit side "To", credit side "By".
Q13. The most common method of preparing a trial balance is the: Practice
Correct answer: (A)
Only each account's balance is listed.
Only each account's balance is listed.
Q14. The trial balance difference is ₹270, divisible by 9. This may indicate: Practice
Correct answer: (B)
E.g. ₹530 written as ₹350; difference 180, divisible by 9.
E.g. ₹530 written as ₹350; difference 180, divisible by 9.
Q15. At year-end, nominal accounts are: Practice
Correct answer: (C)
Income and expense accounts are not carried forward.
Income and expense accounts are not carried forward.
Q16. Opening stock appears on which side of the trial balance? Practice
Correct answer: (C)
It is an asset with a debit balance.
It is an asset with a debit balance.
Q17. "Balance c/d" means balance: Practice
Correct answer: (D)
Next period it becomes "Balance b/d".
Next period it becomes "Balance b/d".
Q18. An amount meant for Ram's account was posted to the correct side of Shyam's account. This error: Practice
Correct answer: (A)
It is an error of commission; debits and credits stay equal.
It is an error of commission; debits and credits stay equal.
Q19. The usual balance of the capital account is: Practice
Correct answer: (B)
Capital is a liability of the business.
Capital is a liability of the business.
Q20. A trial balance is prepared: Practice
Correct answer: (A)
It is a snapshot of balances on a date.
It is a snapshot of balances on a date.