Ledger Accounts and Trial Balance.

In this article, Ledger Accounts, you are going to learn the definition of the term “Trial Balance”, the rules for identification of balances, characteristics of items that can be combined, how to balance off the ledger account and the extraction of a trial balance. Read also; 1,2, and 3 Column Cashbook here.

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What is a Ledger in Accounting?

In simple words, Ledger is a book in which all accounts are maintained. A ledger in accounting is also known as the principal book of accounts as well as the book of final entry.

What is a Trial Balance?

A trial balance is a list of balances from the ledger accounts arranged in two columns of debit and credit to ascertain the arithmetical accuracy of the entries in the ledger account.

If the double-entry principle has been well applied, that is, if every debit entry has got a corresponding credit entry and vice-versa, the total of the debit entries must equal the total of the credit entries.

Rules For Identification of Balances

The following items will usually have debit balances:

• All assets I.e. fixtures and fittings, building, plant and machinery, stock, cash, and bank balances etc…
• All expenses I.e. carriage outward, discount allowed, wages and salaries, rent etc…
• Drawing (Reduction in the capital).
• Reduction in liability.
• Return inwards (Reduction in income)
• Provision for discount received.

The following will usually have credit balances:

• Owner’s equity e.g. capital
• Liabilities e.g. bank loan, creditors, bank overdraft.
• Reduction in fixed assets e.g. depreciation.
• Reduction in expenses e.g. returns outward.
• Normal provision e.g. provision for doubtful debt, provision for depreciation etc…

Characteristics of items that can be Combined in the Trial Balance

1. Items having opposite names and opposite balances, such as:

• Debtors and Creditors.
• Discount allowed and Discount received.
• Returns inward and Returns outward.
• Purchases and Sales.

NOTE: Start with the one on the debit side followed by that of the credit side.

Balancing Off The Ledger Accounts

Balancing off the ledger accounts are done in the same way as it applies to the cash book since the cash book is also a ledger in itself. What about Subsidiary Books? Click here to read the summary of Subsidiary Books of Accounting.

Video Guide on Ledger Accounts and Trial Balance