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Jasmeet_Sethi
Jasmeet_SethiCurious
In: 1. Financial Accounting > Ledger & Trial Balance

How to treat sundry debtors in trial balance?

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  1. GautamSaxena Curious .
    Added an answer on July 29, 2022 at 10:15 pm
    This answer was edited.

    Sundry Debtors in Trial Balance The debtor is a company's asset, and assets are always debited in the trial balance. The trial balance is a statement maintained at the end of an accounting period, listing the ending balances in each general ledger account. There are two sides to this account, debit,Read more

    Sundry Debtors in Trial Balance

    The debtor is a company’s asset, and assets are always debited in the trial balance.

    • The trial balance is a statement maintained at the end of an accounting period, listing the ending balances in each general ledger account.
    • There are two sides to this account, debit, and credit and they include all the transactions done in the business over a particular accounting period.

     

    As we know, assets, expenses, and drawings are always debited. That applies not only in journals but here as well, hence, all of your assets are to be debited.

    Trial Balance Statement

     

    As we can see here, the sundry debtors (on the 4th) are debited like all the other assets, expenses, and losses. In the end, if the basic accounting equation i.e. assets=capital+liability is violated, a mismatch arises which in the balancing figure is shown under the name of suspense account. Such errors must not be found and corrected to avoid any mismatch in the balance sheet of the company.

    Total Assets = Capital + Other Liabilities.

    Therefore, this is how the sundry debtors are treated in the Trial Balance.

     

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Simerpreet
SimerpreetHelpful
In: 1. Financial Accounting > Ledger & Trial Balance

Which account has a debit balance?

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Answer
  1. Saurav
    Added an answer on September 20, 2023 at 4:40 pm
    This answer was edited.

    Debit balance means excess of credit side over debit side. For Example- At the beginning of the year the debit balance of trade receivables is 3,000 and there is a decrease(credit) of trade receivables of 1,000 during the year and an increase(debit) of trade receivables of 4,000 then at the end therRead more

    Debit balance means excess of credit side over debit side.

    For Example- At the beginning of the year the debit balance of trade receivables is 3,000 and there is a decrease(credit) of trade receivables of 1,000 during the year and an increase(debit) of trade receivables of 4,000 then at the end there will be a debit balance of 6,000 of trade receivables at the end

    A Debit balance basically signifies all expenses and losses and all positive balances of assets. The debit balance increases when any asset increases and decreases when any asset decreases.

    Assets

    All the assets that appear in the balance sheet always have a debit balance. The debit balance under it will increase as it debits. Some of these assets can be illustrated below -:

    •  Cash and Bank Balance: Cash and Bank Balance means the amount that is held by a person in physical form or in a current/savings account.
    • Property, Plant, and Equipment-  Property Plant, and Equipment means assets that are used for the production of goods and services.
    • Account Receivables– Account Receivables means the amount that is due from debtors to whom goods were sold at credit for a specified time period.
    • Inventory – Inventory means goods that are used in the normal course of business.
    • Investments– Investments are the amount invested in other companies from which they were expecting returns in future periods.

     

    Expenses and Losses

    All expenses that appear on the debit side of the P&L account have a debit balance in their accounts.

    For eg-: A rent of 10,000 is given to the landlord under which the work has been done by the entity.

    For eg-: A depreciation of 10% is there on an asset of 12,000 will result in a debit balance under depreciation in the P&L Account.

    Some of the following expenses can be illustrated below

    • Rent- Rent means a property that an entity takes on lease for business purpose and pay a certain amount to the landlord for such lease.
    • Depreciation– Depreciation means a fall in the value of an asset due to its usage every year
    • Loss on Sale of an asset- Loss on the Sale of an Asset means the sale amount of the asset is less than its WDV
    • Printing and stationery– Printing and Stationery means the paperwork or anything related to stationery used for business purposes
    • Audit fees– Audit fees are the amount which is given to an auditor for auditing the financials of an entity
    • Salaries and Wages– Salaries and Wages are the amount given to employees for the work they have done for the entity
    • Insurance– Insurance means a premium given by an entity for insurance done by them
    • Advertising– Advertising means any promotion that a company does of its product to increase its revenue

    So after seeing all the above points we can conclude that the debit balance includes all the expenses that are in the P&L account and all the assets that are there in the Balance sheet. So its balance increases when there is an increase in its account.

     

    CREDIT BALANCE

    Credit balance means excess of credit side over debit side.

    For example, At the beginning of the year, the credit balance of trade payable is 3,000 and there is a debit of trade payable of 1,000 during the year and an increase(credit) of trade payable of 4,000 then at end there will be a credit balance of 6,000 for trade payable at the end

    .A Credit balance signifies all income and gains and all liabilities and capital that is there in business.

    Liabilities

    • Account Payables
    • Bank Overdraft
    • Bonds
    • Income Tax Payables
    • Notes Payable
    • Deferred Tax Liability

     

    Income and Gains

    • Interest Received
    • Dividend Received
    • Rent Received
    • Gains on Sale of Capital Gains

     

     

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Bonnie
BonnieCurious
In: 1. Financial Accounting > Ledger & Trial Balance

How to post a compound entry in ledger account?

Compound EntryLedger
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Answer
  1. Simerpreet Helpful CMA Inter qualified
    Added an answer on June 17, 2021 at 2:40 pm
    This answer was edited.

    When in a single transaction two or more accounts are involved, such kinds of transactions are termed as Compound entries. Example 1, Johnson Co. purchased goods worth 5,000, and half of the amount was paid in cash and the other half by cheque. So here three accounts are involved: Purchase account-Read more

    When in a single transaction two or more accounts are involved, such kinds of transactions are termed as Compound entries.

    Example 1, Johnson Co. purchased goods worth 5,000, and half of the amount was paid in cash and the other half by cheque.

    So here three accounts are involved:

    Purchase account- That is to be debited.

    Cash account- That is to be credited.

    Bank account- That is to be credited.

    Journal entry:

    Now posting the above journal entry in a ledger account.

    In the Journal, the Purchase account has been debited. So in the ledger, the purchase account will also be debited. Since the purchase account is debited in the ledger, the corresponding two credit accounts of this entry i.e. the cash and the bank will be written on the debit side in the particulars column. So while posting, the amount to be considered would be the amount individually paid in cash and bank as shown in the journal entry.

    Cash a/c is credited with the purchase account.  In the ledger, purchase a/c will be posted on the credit side. So while posting, the amount to be considered would be the amount individually paid in cash.

    Bank a/c is credited with the purchase account. In the ledger, purchase a/c will be posted on the credit side. So while posting, the amount to be considered would be the amount individually paid in Bank a/c.

    Example 2,  Johnson Co purchased goods and made payment in cash 2,000. Along with it, it also paid commission and interest of 1,000 and 500 respectively.

    So here four accounts are involved:

    Purchase account- That is to be debited.

    The commission allowed account- That is to be debited.

    Interest allowed account- That is to be debited.

    Cash account- That is to be credited.

    Journal Entry:

    Now posting the above journal entry in a ledger account.

    In the journal entry, the cash account has been credited. So in the ledger, the cash account will also be credited. Since the cash account is credited in the ledger, the corresponding three accounts will also be credited in the particulars column. As in the journal entry the three debit accounts viz. Purchase, the commission allowed, and interest allowed, the amounts written against them shall be entered in the respective accounts in the amount column on the credit side of the cash account.

    Purchase a/c is debited with a cash account.  In the ledger, Cash a/c will be posted on the debit side. So while posting, the amount to be considered would be the amount individually paid in the Purchase account.

    The commission allowed a/c is debited with a cash account.  In the ledger, cash a/c will be posted on the debit side. So while posting, the amount to be considered would be the amount individually paid in Commission allowed a/c.

    Interest allowed a/c is debited with a cash account.  In the ledger, cash a/c will be posted on the debit side. So while posting, the amount to be considered would be the amount individually paid in Interest allowed a/c.

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Jayesh Gupta
Jayesh GuptaCurious
In: 1. Financial Accounting > Ledger & Trial Balance

Which errors are revealed by trial balance?

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Answer
  1. GautamSaxena Curious .
    Added an answer on July 18, 2022 at 8:24 pm
    This answer was edited.

    Errors revealed by Trial Balance Trial balance, as we know, is a statement prepared after the ledger, followed by a journal. It has a list of all the general ledger accounts contained in the ledger of a business. Each nominal ledger account either holds a debit balance or credit. It is primarily useRead more

    Errors revealed by Trial Balance

    Trial balance, as we know, is a statement prepared after the ledger, followed by a journal. It has a list of all the general ledger accounts contained in the ledger of a business. Each nominal ledger account either holds a debit balance or credit.

    It is primarily used to identify the balance of debits and credits entries from the transactions recorded in the general ledger in a certain accounting period. The debit and credit sides total are equal in a trial balance.

    Classification of errors in the trial balance

    • Errors of Commission: Errors arising due to wrong posting of a journal entry, a ledger account, wrong totaling of a subsidiary book, or even wrong recording of accounts. Therefore, resulting in trial balance error. E.g business receives an amount on goods sold on credit but it is instead posted to additional capital a/c.
    • Errors of Omission: This occurs when some transactions are fully or partially omitted from books of accounts. A complete omission is a case when the transaction is completely omitted but a partial omission is seen when the transaction is entered in the journal but not posted to the ledger. E.g a cheque worth $4,100 was received from ABC Ltd. but completely omitted. Then the rectification entry shall be passed later on.
    • Compensating Errors: It occurs when the errors are equal in amount and opposite to each other so and so that they cancel each other which further creates no difference in the Trial Balance. E.g Harry’s account is debited to $300 wrongly instead of $400. On the other hand, Liam’s account is credited by $700 instead of $800.
    • Errors of Principles: These are the errors occurring when the entries that are posted are incorrect, violating the accounting policy. E.g when receiving money from debtor then debiting debtor and crediting the amount of money received.

    Some of the common errors

    Some more (commonly seen) errors while preparation of the trial balance:

    Errors of Commission

    1. Addition or totaling mistakes in the trial balance, debit, and credit side.
    2. Wrong totaling of subsidiary books.
    3. Error in the sum total of subsidiary book.
    4. Posting in the wrong account.
    5. Recording a transaction incorrectly in a journal.
    6. Balance wrote on the wrong side of the trial balance.
    7. Error in posting a journal to a ledger.
    8. Posting on the wrong side of the account.

    Errors of Omission

    1. Goods purchased and returned to the supplier may be entered in the purchase returns book but not posted in the debit of the supplier account.
    2. Cash paid to creditors was completely omitted from the recording.

    Compensating Errors

    • Wrong posting of the same amount in another account, which may not be affecting the equalizing of trial balance.

    Errors of Principles

    1. Posting twice to a ledger account.
    2. Balance c/d or balance b/d is written on the wrong side of the ledger account.
    3. Reversal of a journal entry by mistake like, crediting cash and debiting debtor’s a/c.

     

     

     

     

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Jayesh Gupta
Jayesh GuptaCurious
In: 1. Financial Accounting > Ledger & Trial Balance

Which account has a credit balance?

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Answer
  1. Saurav
    Added an answer on September 25, 2023 at 4:06 am
    This answer was edited.

    Credit balance means excess of credit side over debit side. For example, At the beginning of the year, the credit balance of trade payable is 3,000 and there is a debit of trade payable of 1,000 during the year and an increase(credit) of trade payable of 4,000 then at the end there will be a creditRead more

    Credit balance means excess of credit side over debit side.

    For example, At the beginning of the year, the credit balance of trade payable is 3,000 and there is a debit of trade payable of 1,000 during the year and an increase(credit) of trade payable of 4,000 then at the end there will be a credit balance of 6,000 of trade payable at the end

    .A Credit balance signifies all income and gains and all liabilities and capital that is there in business.

     

    Liabilities and Capital

    • Account Payables– Account Payables means the amount that is due to the customer by the entity. Its credit balance will always increase when there is an increase in account payables and will decrease when there is a decrease in account payables. For eg-: The stock that has been purchased in credit from creditors of 10,000 will result in an increase in credit balance.
    • Bank Overdraft-Bank Overdraft means when the amount withdrawn from the bank is more than the balance left in the bank. For example, there is a bank balance of 2,000 in the bank but an amount of 4,000 has been withdrawn from the bank. So in such a case, there will be a credit balance of 2,000 which is in Bank Overdraft
    • Bonds– Bonds are the amount that is withdrawn from people for a specific time period which gets redeemed at a coupon rate after such a specific period. For example- A 10% bond of 10,000 is given to a group of people which will be redeemed after 5 years.
    • Income Tax Payables-Income Tax Payable means the amount the company left to pay to the government in earlier periods. For example- There is a tax liability of 10,000 in FY20-21 from which 8,000 was paid in the current year and 2,000 paid in FY21-22.
    • Notes Payable– Notes Payable is a type of promissory note in which a person pays some amount to an entity that the entity will write in a specific period. For example Notes payable of 1,000 given by a person to an entity which will be returned in 3 months with interest
    • Capital– Capital means the amount that is introduced by the company at the beginning of the business for the operations and survival of the business. For example- A capital of 10,000 has been introduced by the company.

     

    Income and Gains

    • Interest Received-Interest Received means the amount which is invested by the company in some other entity and interest received on it
    • Dividend Received– Dividend means the amount received from the entity in which amount invested by the company
    • Rent Received– Rent is the amount that the company receives by letting out their land to another person or entity for use
    • Gains on Sale of Furniture– Gain on Sale of Furniture means that the amount received from the sale of furniture is more than the amount of furniture. So the difference between the amount received from the sale and the cost of furniture is called a gain on the sale of furniture.

    So after seeing all the above points we can conclude that the credit balance includes all the income in the P&L account and all the liabilities in the Balance sheet. So its balance increases when there is an increase in its account.

     

    Debit Balance

    Debit balance means excess of credit side over debit side.

    For Example- At begining of the year the debit balance of trade receivables is 3,000 and there is a decrease(credit) of trade receivables of 1,000 during the year and an increase(debit) of trade receivables of 4,000 then at the end there will be a debit balance of 6,000 of trade receivables at the end

    A Debit balance basically signifies all expenses and losses and all positive balances of assets. The debit balance increases when any asset increases and decreases when any asset decreases.

     

    Asset

    • Cash and Bank Balance
    • Account Receivables
    • Property, Plant, and Equipment
    • Inventory
    • Investments
    • Bill Receivables
    • Intangible Assets

     

    Expenses and Loses

    • Rent
    • Depreciation
    • General Expenses
    • Loss on Sale of asset
    • Printing and stationery
    • Audit fees
    • Outstanding fees
    • Salaries and Wages
    • Insurance
    • Advertising
    • Promotional expenses
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Bonnie
BonnieCurious
In: 1. Financial Accounting > Ledger & Trial Balance

Which accounts are balanced and which are not?

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Answer
  1. Astha Leader Pursuing CA, BCom (Hons.)
    Added an answer on June 19, 2021 at 3:08 pm
    This answer was edited.

    There are two types of ledger accounts in the accounting system – temporary and permanent. Temporary accounts are those whose balances zero out and we do not carry forward balances to the next year. Examples are revenue and expenses accounts or nominal accounts. The balances of such accounts are traRead more

    There are two types of ledger accounts in the accounting system – temporary and permanent.

    Temporary accounts are those whose balances zero out and we do not carry forward balances to the next year. Examples are revenue and expenses accounts or nominal accounts. The balances of such accounts are transferred to the profit and loss account and therefore are not balanced.

    Permanent accounts are those whose balances are carried forward to the next accounting year in form of opening balances. These accounts are balanced and such balances are transferred to the balance sheet. Examples are assets, liability and capital accounts or personal and real accounts.

    Balancing an account means equaling both the debit and the credit side of the account. Generally, there is a difference between the accounts recorded as a carry down balance in the case of permanent accounts and as a transfer balance in the case of temporary accounts.

    Balancing serves as a check to the double-entry rule of accounting.

    Balanced accounts

    As discussed above, the balanced accounts are shown in the balance sheet and the balancing figure for such accounts are carried forward to the next accounting period.

    Unbalanced accounts

    As per the above discussion, the balancing figures of unbalanced accounts are transferred to the profit and loss account and no balances are carried forward to the next accounting period.

    Suppose a company Shine Ltd. has machinery costing 5,00,000 at the beginning of the accounting period and charges depreciation of 10% on the asset. The company also has creditors amounting to 50,000 at the beginning of the period and purchases goods amounting to 30,000 on credit. It has a cash balance of 95,000 at the beginning of the period and earns interest amounting to 10,000.

    Following ledgers would be prepared to record the above entries:

    The above ledgers can be shown as follows:

    The balance of the machinery account will be shown in the balance sheet and therefore it is a balanced account.

    The balance is transferred to the profit and loss account and therefore depreciation account is an unbalanced account.

    The balance of creditors account will be shown in the balance sheet and therefore it is a balanced account.

    The balance is transferred to the profit and loss account and therefore purchases account is an unbalanced account.

    The balance of the cash account will be shown in the balance sheet and therefore it is a balanced account.

    The balance is transferred to the profit and loss account and therefore interest account is an unbalanced account.

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Jayesh Gupta
Jayesh GuptaCurious
In: 1. Financial Accounting > Ledger & Trial Balance

I need 20 journal entries with ledger and trial balance?

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Answer
  1. AbhishekBatabyal Helpful Pursuing CA, BCOM (HONS)
    Added an answer on August 19, 2022 at 3:47 pm
    This answer was edited.

    20 Journal Entries Journal is the book of initial entry, hence the transactions are at first recorded in the journal by the way of journal entries. Journal entries are made as per the double entry system of accounting, where for each transaction one account is debited and another account is creditedRead more

    20 Journal Entries

    Journal is the book of initial entry, hence the transactions are at first recorded in the journal by the way of journal entries.

    Journal entries are made as per the double entry system of accounting, where for each transaction one account is debited and another account is credited.

    In the case of compound journal entries, one set of accounts is debited and one set of accounts is credited.

    The amount of debit and credit always remains the same.

    For example, when cash is introduced into a business, it affects two accounts: Cash A/c and Capital A/c. The accounts are debited and. credited as per the golden rules of accounting.

    The journal entries which I have provided are based on the following transactions and events:

    1. The business started with Rs. 1,00,000 
    2. Bought machinery for Rs. 15,000 and furniture for Rs. 10,000
    3. Purchased goods of Rs. 20,000 with cash 
    4. Bought Stationery for Rs. 500 
    5. Cash deposited into bank Rs. 40,000 
    6. Goods sold to Matt for Rs. 15,000 
    7. Purchased goods from Uday of Rs. 30,000 
    8. Being Rs. 5,000 rent paid for premises 
    9. Cheque received from Matt of Rs. 15,000 
    10. Defective goods returned to Uday returned of Rs. 2,000 
    11. Cash sales of Rs. 25,000 
    12. Carriage Inward paid Rs. 700
    13. Cash withdrawn from bank Rs. 15,000 
    14. Full payment made to Uday in cash. Discount received from Uday Rs. 1000.
    15. Refreshments given to customers of Rs. 200
    16. Goods sold to Shyam for Rs. 7,500 
    17. Goods purchased from Ram of Rs. 50,000 
    18. Salaries paid to employees by bank Rs. 5,000 
    19. Good sold to Suri for Rs. 25,000 
    20. Insurance premium paid of Rs. 1,500 by the bank.

    Journal Entries

    The journal entries based on the above are as follows:

     

    Ledgers

    Ledger is known as the book of final entry. It is the book where the transactions related to a specific account are posted. This posting of transactions is done from journal entries.

    The posting of journal entries into the ledger is performed in the following way:

    The journal entry of cash sales is :

    Cash A/c                                                           Dr.            Amt
          To Sales A/c            Amt

    Here, Cash A/c is debited to Sales A/c. So, in the Cash A/c ledger, posting will be made on the debit side as “To Sales A/c”

    In the Sales A/c ledger, the posting will be made on the credit as “By Cash A/c” because Sales A/c is credited to Cash A/c

    For creating ledgers, journal entries are a prerequisite.

    Now, the ledgers to be created as per the journal entries made above are as follows:

    1. Cash A/c
    2. Bank A/c
    3. Capital A/c
    4. Furniture A/c
    5. Machinery A/c
    6. Purchase a/c
    7. Sales A/c
    8. Matt A/c (Debtor)
    9. Uday A/c (Creditor)
    10. Rent A/c
    11. Purchase Return A/c
    12. Stationery A/c
    13. Carriage Inward A/c
    14. Refreshment A/c
    15. Shyam A/c (Debtor)
    16. Ram A/c (Creditor)
    17. Suri A/c (Debtor)
    18. Refreshment A/c
    19. Discount Received A/c

    The account ledgers are as follows:

    Trial Balance

    A trial balance is a statement that is prepared to check the arithmetical accuracy of books of accounts.

    In this statement, the total of all accounts having debit balance and the total of all accounts having credit balance is computed. If the total of debit and credit matches, then it can be said that the books of accounts are arithmetically accurate.

    Here also we have prepared the trial balance by computing the total of accounts  having debit balances and the total of  accounts having credit balances

    The debit column total and credit column total are matching. Hence, we can say that the books of accounts we have prepared are arithmetically accurate.

    Note: Matt A/c and Uday A/c have not appeared in the trial balance because they do not have any carrying balance.

     

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Jasmeet_Sethi
Jasmeet_SethiCurious
In: 1. Financial Accounting > Ledger & Trial Balance

How to treat drawings in the trial balance?

DrawingsTrial Balance
  • 1 Answer
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Answer
  1. Manvi Pursuing ACCA
    Added an answer on July 5, 2021 at 4:45 pm
    This answer was edited.

    Drawings mean the certain sum of amount or goods withdrawn by owners from the business for personal use. The drawings account is not an asset/liability/expense/income account, it is a contra account to the owner's equity or capital account. Drawings A/c will always have a debit balance. Drawings A/cRead more

    Drawings mean the certain sum of amount or goods withdrawn by owners from the business for personal use. The drawings account is not an asset/liability/expense/income account, it is a contra account to the owner’s equity or capital account. Drawings A/c will always have a debit balance.

    Drawings A/c debit balance is contrary to the Capital A/c credit balance because any withdrawal from the business for personal use will reduce the capital.

    Effect on Trial Balance: Drawings will be shown in the debit column of the trial balance.

    Effect on Financial Statements: The owner’s drawings will affect the company’s balance sheet by decreasing the asset that is withdrawn, and a corresponding decrease in the owner’s equity or capital invested.

    Example:

    Mr.B a sole proprietor withdraws $100 each month for personal use. At the end of the year Drawings A/c had a debit balance of $1,200.

    Mr.B records drawings of $100 each month and debits drawings a/c and credits cash a/c. At the end of the year, he will transfer the balance and will debit capital a/c and credit drawings a/c by $1,200.

    He will show a balance of $1,200 ($100*12) in the trial balance in the debit column. Assuming closing capital of $50,000.

    In the financial statement, the balance of drawings a/c will be deducted from the owner’s capital because it is a contra account and this will reduce the owner’s capital for the year.

     

     

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Simerpreet
SimerpreetHelpful
In: 1. Financial Accounting > Ledger & Trial Balance

What is a ledger posting example?

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  1. GautamSaxena Curious .
    Added an answer on August 10, 2022 at 8:15 pm
    This answer was edited.

    Ledger posting The process of entering all transactions from journal to ledger is called ledger posting. Each ledger account contains an individual asset, person, revenue, or expense. As we're aware the journal records all the transactions of the business. Posting to the ledger account not only helpRead more

    Ledger posting

    The process of entering all transactions from journal to ledger is called ledger posting. Each ledger account contains an individual asset, person, revenue, or expense. As we’re aware the journal records all the transactions of the business.

    Posting to the ledger account not only helps the proper maintenance of the ledger book but also helps in reflecting a permanent summary of all the journal accounts. In the end, all the accounts that are entered and operated in the ledger are closed, totaled, and balanced.

    Balancing the ledger means finding the difference between the debit and credit amounts of a particular account, it’s done on the day of closing of the accounting year. Sometimes journal entries are made and maintained monthly. Therefore, the balancing of the ledger’s date depends on the business’ closing date and the way a business maintains its books of accounts.

    Example

    Mr. Jack Sparrow decided to start a new clothing business. On 1st April 2021, He started the business with a total sum of $100,000 cash. He purchased furniture, including desks and shelves for $25,000. Mr. Sparrow then decided to start with women’s clothing and purchased a complete range of clothes from the wholesale market for $50,000. On the next day, he sold all the stock for $75,000. He also hired a worker for $5,000.

    We need to journalize these transactions and post them into the ledger account.

     

    Journal Entries

     

    Ledger Accounts

    Cash A/c

     

    Capital A/c

     

    Purchases A/c

     

    Sales A/c

     

    Salary A/c

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In: 1. Financial Accounting > Ledger & Trial Balance

Give a specimen of an account?

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  1. Simerpreet Helpful CMA Inter qualified
    Added an answer on July 12, 2021 at 12:09 pm
    This answer was edited.

    Specimen of Ledger account This is the specimen of a ledger account. J.F. here represents the journal folio. A Ledger account is an account that consists of all the business transactions that take place during the current financial year. For Example, cash, bank, machinery, A/c receivable account, etRead more

    Specimen of Ledger account

    This is the specimen of a ledger account. J.F. here represents the journal folio.

    A Ledger account is an account that consists of all the business transactions that take place during the current financial year.

    For Example, cash, bank, machinery, A/c receivable account, etc.

    After the financial data is recorded in the Journal. It is then classified according to the nature of accounts viz. Asset, liability, expenses, revenue, and capital to be posted in the ledger account.

    With this head, the identification as to whether the opening balance will come under the debit side or the credit side is done.

    The table below would help to understand the concept of opening balance in the ledger.

    For further clarification of the concept let me give you a practical example.

    Suppose, a manufacturing firm Amul purchased machinery for, say, Rs 2,50,000. The installation charges were Rs 25,000 and the opening balance of machinery during the year was Rs 5,00,000.

    So as the machinery account comes under the category assets, its opening balance would come under the debit side of the ledger account.

    And as purchase and installation charges mean expenses for the firm, they would also come under the debit side of the account.

    And in case of any sale of a part of the machinery, it would be posted on the credit side of the account as the sales would generate revenue for the firm.

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