Professional Documents
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Introduction
The transactions which were recorded in prime entry books using source documents
are posted to the ledger accounts under the double entry system. The collection of
these accounts can be identified as the ledger. It includes various types of accounts. As
the changes of transactions are recorded in the ledger accounts we can see a summary
of such transactions in a ledger account. Using the balances of ledger accounts for a
specific day, the trial balance is prepared to ensure the arithmetic accuracy of transactions
recorded under the double entry system. The trial balance is very useful for the
preparation of remaining accounting records in a business.
Accordingly, the preparation of accounts and the trial balance will be discussed in this
chapter.
_ Assets accounts
_ Income accounts
_ Expenditure accounts
_ Equity accounts
_ Liability accounts
_ Ledger
_ Trial balance
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Income accounts
Liability accounts
Expenditure accounts
Capital account
Assets accounts
Ledger
Assets Accounts
The resources of a business can simply be identified as assets. The changes in assets
are recorded in assets accounts.
Examples :
building account
debtors account
cash account
insurance account
salaries account
electricity account
Liabilities Accounts
The obligations for out side parties are known as liabilities. The changes in such
liabilities are recorded in liability accounts. Liability account has a credit balance.
Examples :
creditors account
bank loan account
Income Accounts
Income accounts are used to record the details of income earned by the business from
various sources. Specially, the income generated from selling goods and providing
services to the customers are recorded in this account and it has a credit balance.
Examples :
sales Account
interest received account
rent received account
discount received account
Capital Accounts
The accounts which show the values of the resources that belong to owners of the
business can be identified as capital accounts. Capital account has a credit balance.
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Accordingly, you have already realized that a ledger has various types of accounts.
and the transactions recorded in prime entry books are posted to the ledger under
double entry system.
Revise your knowledge on how the transactions recorded in prime entry books are
posted to the ledger.
As the cash book and petty cash book act as a ledger accounts, only one
effect is recorded in the ledger accounts out of the transactions recorded in
cash book and petty cash book.
The dual effect of transactions recorded in other prime entry books are
recorded in ledger accounts.
Let us study the following example to revise your knowledge on double entry system
which you have studied in Grade 10.
Date
Transaction
Debit account
01'01.xx
04.01.xx
Cash book
Credit account
Capital account
Office equipment
account
Cash book
Rent account
Cash book
Cash book
Sales account
Cash book
Cash Book
Date
Description
01'01.xx
Capital account
12.01.xx
Sales account
14.01.xx
Bank loan
account
L Amount
F Rs.
75"000
9"700
15"000
Date
Description
L Amount
F Rs.
8"000
1"500
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24"000
Capital Account
Debit
L. Amount
F. Rs.
Date Description
Date
Description
04.01.xx
Cash
07.01.xx
Debit
Date
01.01.xx
Cash
L. Amount
F. Rs.
Date
Description
Rent Account
Description
L. Amount
F. Rs.
75"000
Credit
L. Amount
F. Rs.
L. Amount
F. Rs.
Credit
Date
Description
L. Amount
F. Rs.
Description
Credit
L. Amount
F. Rs.
1"500
Cash
Purchases Account
Debit
Date
Description
8"000
Debit
05.01.xx
Date
Debit
Date
Credit
Description
Cash
L. Amount
F. Rs.
Date
24"000
L. Amount
F. Rs.
Date
Credit
Description
14.01.xx Cash
L. Amount
F. Rs.
15"000
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Debit
Credit
Date Description
Sales Account
L. Amount
F. Rs.
Date
Description
Amount
Rs.
Cash
12.01.xx
2.2
L.
F.
9"700
After recording transactions in ledger accounts, the balances of credit and debit sides
of them should be calculated at the end of a certain period of time.
This process is called balancing off the ledger accounts.
Following three ledger accounts show five transactions occurred in a business during
the month of March 20XX.
Stationery Account
Debit
Date
15.03.xx
Description
Cash
Date
Description
Description
L. Amount
F. Rs.
3"200
Creditors Account
Debit
Date
L. Amount
F. Rs.
Credit
L. Amount
F. Rs.
Date
Description
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Credit
L. Amount
F. Rs.
13"500
9"200
Debit
Date
Description
20'03.xx
Cash
L. Amount
F. Rs.
Date
Description
02'03.xx
2"000
Credit
Cash
L. Amount
F. Rs.
25"000
Study how the above accounts have been balanced as they are shown below.
Stationery Account
Debit
Date
15'03.xx
Description
Cash
L. Amount
F. Rs.
3"200
Date
Credit
Description L. Amount
F. Rs.
3"200
01'04.xx
Balance b/f
Date
31'03.xx
3"200
3"200
Creditors Account
Debit
Description
Balance c/d
L. Amount
F. Rs.
Date
22"700 12'03.xx
24'03.xx
Credit
Amount
Description L.
F. Rs.
Purchase A/c
Purchase A/c
22"700
Date
20'03.xx
31'03.xx
L. Amount
Description F. Rs.
Cash
Balance c/d
13"500
9"200
22"700
01'04.xx
Debit
3"200
Date
2"000 02'03.xx
Balance b/f
22"700
Credit
L. Amount
Description
F. Rs.
Cash
25"000
23"000
25"000
25"000
01'04.xx
Balance b/f
23"000
Accordingly, understand how the ledger accounts are balanced after recording the
transactions.
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Activity 01
Record the following transactions in the ledger accounts and balance them as at
31.01.20XX
05.01.
08.01.
10.01.
15.01.
20.01.
30.01.
Introduction of capital
Cash purchases
Bank loans obtained
Cash sales
Cash purchases
Payment of salaries
Rs. 74,000
Rs 15,000
Rs 35,000
Rs 24,000
Rs 16,000
Rs. 5,000
Discount allowed
Debtors
Discount received
Bank loan
Bank loan interest
Commission received
Buildings
Lands
Creditors
Capital
3,000
15,000
2,000
10,000
2,000
6,000
45,000
30,000
25,000
20,000
The following trial balance has been prepared using the above balances provided by
Sepalas Business as at 31.12.20xx
Sepalas Business
Trial Balance as at 31.12.20xx
Description
L.
P.
Purchases
Cash
Sales
Insurance
Electricity
Tax
Furniture
Discount allowed
Discount received
Bank loan
Bank loan interest
Commission receiveda
Buildings
Lands
Creditors
Debtors
Capital
Debit
Rs.
Credit
Rs.
20"000
5"000
110"000
4"000
3"000
1"000
45"000
3"000
2"000
10"000
2"000
6"000
45"000
30"000
25"000
15"000
173"000
20"000
173"000
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Introduction of capital
Purchase of office equipment paying cash
Cash purchases of goods
Purchase of a motor bike paying
Payment of insurance charges
Cash sales of goods
Bank loans obtained
Payment of salaries
Cash sales of goods
Payment of building rent
Cash purchases of goods
Cash drawings
Rs
Rs
Rs
Rs
Rs
Rs
Rs
Rs
Rs
Rs
Rs
Rs
125,000
18,000
45,000
50,000
1,500
30,000
40,000
8,000
24,000
3,500
20,000
2,500
Following cash book, ledger accounts and trial balance have been prepared using the
above transactions extracted from the Business of Dayananda Lokuge.
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Cash Book
Date
Description
L. Amount Date
F. Rs.
Description
L. Amount
F. Rs.
18"000
45"000
50"000
3"500
20"000
2"500
70"500
Date
31'01'20xx
219"000
70"500
Capital Account
Debit
Description
Balance c/d
L. Amount
F. Rs.
Date
Credit
Description
125"000
125"000
125"000
Date
Description
10'01'20xx
Cash Book
01'02'20xx
Balance b/f
L. Amount
F. Rs.
Debit
8"000
219"000
01'02'20xx Balance b/f
1"500
L. Amount
F. Rs.
Date
Description
125"000
Credit
L. Amount
F. Rs.
18"000
18"000
18"000
18"000
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Debit
Date
Description
15'01'20xx
Date
L. Amount
F. Rs.
Description
50"000 31'01'20xx
Cash Book
Credit
L. Amount
F. Rs.
50"000
Balance c/d
50"000
50"000
01'02'20xx
50"000
Balance b/f
Purchases Account
Debit
Date
Description
Credit
L.
Amount
Description
F. Rs.
Date
L. Amount
F. Rs.
14'01'20xx
Cash Book
45"000 31'01'20xx
30'01'20xx
Cash Book
20"000
65"000
Balance c/d
65"000
65"000
01'02'20xx
Debit
L. Amount
Description F. Rs.
Date
19'01'20xx
01'02'20xx
65"000
Balance b/f
Cash Book
Balance b/f
31'01'20xx
Credit
Description
Description
Balance c/d
L.
F.
Amount
Rs.
1"500
1"500
1"500
1"500
Sales Account
Debit
Date
Date
L. Amount
F. Rs.
Date
Credit
Description
L. Amount
F. Rs.
54"000 22'01'20xx
Cash Book
30"000
27'01'20xx
Cash Book
24"000
54"000
54"000
01'02'20xx
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Balance b/f
54"000
Debit
Date
31'01'20xx
Description
Balance c/d
L. Amount
F. Rs.
Date
40"000 24'01'20xx
Credit
L. Amount
Description
F. Rs.
Cash Book
40"000
40"000
01'02'20xx
Date
25'01'20xx
Balance b/f
Salaries Account
Debit
Description
Cash Book
L. Amount
F. Rs.
Date
8"000 31'01'20xx
Balance b/f
Description
Balance c/d
Date
29'01'20xx
Description
Cash Book
Balance b/f
Debit
Date
L. Amount
F. Rs.
Date
3"500 31'01'20xx
Description
Balance c/d
31'01'20xx
Cash Book
Balance b/f
L. Amount
F. Rs.
3"500
3"500
L. Amount
F. Rs.
Date
2"500 31'01'20xx
2"500
01'02'20xx
Credit
3"500
Credit
Drawings Account
Description
8"000
8"000
3"500
01'02'20xx
L. Amount
F. Rs.
8"000
Debit
40"000
Credit
8"000
01'02'20xx
40"000
Description
Balance c/d
L. Amount
F. Rs.
2"500
2"500
2"500
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L.
P.
Cash book
Capital account
Office equipment account
Motor vehicles account
Purchases account
Insurance charges account
Sales account
Bank loan account
Salaries account
Bulding rent account
Drawings account
Debit
Rs.
70"500
Credit
Rs.
125"000
18"000
50"000
65"000
1"500
54"000
40"000
8"000
3"500
2"500
219"000
219"000
Activity 02
Assume, you started a business and following types of transactions occurred in the
business during a certain month of its operations.
Investment of capital
Arising of liabilities
Payments for expenses
Receipts of income
Purchase of assets
Settlement of liabilities
Decrease in capital
Required :
Write down transactions with values, that can be classified under each areas
mentioned above.
Prepare the cash book and ledger accounts for the transactions
identified by you.
Balance the ledger accounts as at the last date of the month.
Prepare the trial balance based on the closing balances.
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Activity 03
Following are the transactions extracted from the books of Sirimal's Business during
the month of January 20XX.
Rs.
01'01 Introduction of capital
45"000
02'01 Cash purchases
12"000
04'01 Opened a bank current account
15"000
06'01 Obtained a bank loan
75"000
08'01 Purchase goods issuing a cheque
13"000
10'01 Cash deposited in the bank
20"000
11'01 Cash purchases
16"000
13'01 Credit sales to Gunapala (Invoice No. 01)
10"000
15'01 Credit sales to Karunapala (Invoice No. 02)
7"000
20'01 Purchase of equipment
20"000
23'01 Gunapala sent a cheque to settle his account
9"800
26'01 Cheque sent by Gunapala was deposited in the bank
29'01 Payment of bank loan interest
500
30'01 Payment of bank loan installment
2"000
31'01 Karunapala Paid Rs.3,000 discounts allowed to him was Rs.200
Required :
Using above transactions,
a. i. Prepare prime entry books
ii. Post the transactions to the ledger
iii. Prepare the trial balance as at 31.01.20XX
b. Classify the ledger accounts in the trial balance prepared by you.
c. State whether there are credit or debit balances in each of the accounts classified
by you.
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Activity 04
Following is the trial balance prepared by a trainee accounts assistant of Sujeewa's
Business as at 31.12.20XX.
Description
L.
P.
Stock
Purchases
Sales
Drawings
Discount allowed
Discount received
Miscellaneous income account
Carriage outwards
Creditors
Debtors
Capital
Equipment
Furniture and fittings
Rent expense
Bank loan
Bank loan interest
Commission received
Salaries
Debit
Rs.
Credit
Rs.
25,000
65,000
95,000
4,000
4,000
3,000
16,000
18,000
17,000
15,000
50,000
25,000
35,000
5,000
25,000
1,000
2,000
11,000
208,000
208,000
Required :
i. Identify the errors in the above trial balance.
ii. Prepare the adjusted trial balance as at 31.12.20XX.
iii. Drawings account is not an asset or expenditure account. If so, state as to why
it is recorded in the debit side of the trial balance.
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