Journal-Ledger-Trial Balance

JOURNAL

The basic book of accounting is called journal. Precisely it is the book of prime entry which means - Day book. Trader records his total daily transactions in it. The process of recording the transactions into journal is called 'Journalizing'.

Journal may be described as a book in which the transactions are recorded in the order of occurrence i.e. in chronological order. It is called a book of prime entry or original entry because all business transactions are entered first in this book. The process of writing a transaction in journal is known as journalizing and the transaction written in journal is known as journal entry.

The functions of journal are:

• To analyze each transaction into debit and credit so as to enable their posting in the ledger.
• To arrange transactions, chronologically in order of date.

·         Journal is known as book of original/prime record. Maintaining journal gives the following advantages to the entity concerned:

·         Transactions recorded date-wise with explanation:
All business pecuniary transactions are entered in journal in chronological order i.e. order of occurrence.

·         Process of classification at convenience:
Since transactions are recorded in journal as and when these take place it ensures that nothing shall be omitted which should be recorded.

·         Ensures the double entry rules have been followed:
Each transaction before it is recorded in journal is analyzed for the aspects involved; accounts to be debited and credited and also the debit and credit amount. Totaling of amount columns on each page ensures that the basic rule of "debit having equal and corresponding credit" has been followed.

·         Reliable evidence:
As the transactions taking place and recording is at the same time therefore chances of cooking or manipulating the facts are minimized. Thought out alternations or insertions are not possible.

·         Provides primary source-data:
Journal is directly written on the basis of vouchers so the information contained in the Journal is a primary source of financial statistics of the business.

                                                                       

LEDGER

A ledger  is the principal book for recording and totaling monetary transactions by account, with debits and credits in separate columns and a beginning balance and ending balance for each account. The ledger is a permanent summary of all amounts entered in supporting journals which list individual transactions by date. Every transaction flows from a journal to one or more ledgers.

Maintaining of ledger is a must in every accounting system. It is necessary as will be clear from its advantages.

• Transactions relating to a particular person, item or heading of expenditure or income are grouped in the concerned account at one place.
• When each account is periodically balanced it reflects the net position of that account.
• Ledger is the stepping stone for preparing Trial Balance - which tests the arithmetical accuracy of the accounting books.
• Since the entries recorded in the journal are referenced into ledger the possibility of errors of defalcations are reduced to the minimum.
• Ledger is the destination of all entries made in journal or sub-journals.
• Ledger is the "store-house" of all information which subsequently is used for preparing final accounts and financial statements.

TRIAL BALANCE

A trial balance is a list of all the nominal ledger (general ledger) accounts contained in the ledger of a business. This list will contain the name of the nominal ledger account and the value of that nominal ledger account. The value of the nominal ledger will hold either a debit balance value or a credit value balance. The debit balance values will be listed in the debit column of the trial balance and the credit value balance will be listed in the credit column. The profit and loss statement and balance sheet and other financial reports can then be produced using the ledger accounts listed on the trial balance.

Features of Trial Balance:

• According to double entry system, after recording all transactions until all the business transaction are journalized, and posted, strictly according to double entry system, a trial balance can't be extracted.
• Total of debit and credit amount columns of the trial balance must tally.
• If the debit and credit columns are equal, we assume that ledger accounts are arithmetically accurate.
• Difference in the debit and credit columns point out  that some mistakes have been committed.
• Tallying of trial balance is not a conclusive proof of accuracy of accounts.