Types Of Entries Made In The Journal Proper

The following are the important entries which are made in the journal proper

Opening Entries

All the assets and liabilities of the previous year are required to be carried forward to current year by passing entries. Such entries are called opening entries and passed through the journal proper. The assets are debited and liabilities are credited while passing opening entries. The excess of assets over liabilities is credited to capital account.

Closing Entries

The entries prepared for closing different ledger accounts in the process of preparing final account at the end of the year are called closing entries. Such entries are needed to transfer the expenses and incomes related with revenue nature to trading and profit and loss account. All those transactions are recorded in journal proper.

Transfer Entries

The transfer of amount from one account to another account is made through journal proper. Transfer of gross profit and net profit or loss are required at the time of final accounts preparation. Besides such transfers, the settlement of accounts also is needed. Such transfers of amount from one account to another account are made by passing entries in the journal proper.

Adjustment Entries

Incomes and expenses may occur after closing the ledger accounts at the end of accounting year. They appear in the form of adjustments. Such incomes and expenses should be adjusted either in trading account or profit and loss account or balance sheet. The entries passed for necessary adjustments are called adjustment entries. If those incomes and expenditures are nit incorporated, the trading and profit and loss account can not give true and fair result of operation. Hence, those items of incomes and expenses should be adjusted before preparing final account for a particular period. Since, they affect profit or loss, assets and liabilities of a business entity as a whole.

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Concept And Meaning Of Journal Proper

Journal proper is one of the important journals or subsidiary books. It is a subsidiary book in which not all but only a few types of transactions are recorded. There are certain types of transactions which are not recorded in other subsidiary books but are recorded in the journal proper. These transactions, for example, include the transactions relating to drawings, outstanding expenses, accrued incomes, reserves, provisions, interest on capital, drawing of goods and assets by proprietor, loss of goods by some reasons, and credit purchase and sale of other assets such as land, buildings, machinery, and furniture. In journal proper book, the transactions are recorded by passing journal entries based on the rules of debit and credit. Formally, thus, the journal paper may be defined as a journal or subsidiary book in which not all but only a few types of financial transactions of the business are recorded systematically in a chronological order as and when they take place.

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Importance And Methods Of Preparation Of Trial Balance

Importance Of Trial Balance

The trial balance is important due to the following reasons

* Trial balance summarizes all the financial transactions of the business.
* Trial balance provides a check on the arithmetical accuracy of recordings of all the financial transactions of the business.
* Trial balance helps in locating errors by providing a starting point for the location of errors committed if any.
* Trial balance provides a basis for the preparation of final accounts.

Methods Of Preparation Of Trial Balance

The following are the methods of preparing a trial balance

1. Total Method
Under total method, trial balance is prepared by taking up the total of debits and credit of all ledger accounts.

2. Balance Method
Under balance method, only the balances of all the ledger accounts are taken up to prepare the trial balance.

3. Compound Method
Compound method is the combination of both the methods, total method and balance method. Thus, compound method is also known as total cum balance method/

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Objectives Of Trial Balance

The following are the important objectives of trial balance

1. To Check The Arithmetical Accuracy
Trial balance is based on the double-entry principle of debit equals credit or credit equals debit. As a result, the debit and credit columns of trial balance must always be equal. If they do, it is assumed that the recordings of financial transactions are accurate. Conversely, if they do not, it is assumed that they are not arithmetically accurate. Therefore, one important purpose of preparing trial balance is to provide a check on the arithmetical accuracy of the recordings of the financial transactions.

2. To Help Locate Accounting Errors
Since the trial balance indicates if there is any error committed in the journal and the ledger, it helps the accountant to locate the error because the starting point of locating errors is trial balance itself.

3. To Summarize The Financial Transactions
A business performs several numbers of financial transactions during a certain period of time. The transactions themselves can not portray any picture of the financial affairs of the business. For that purpose, a summary of the transactions has to be drawn. The trial balance is prepared with a view to summarize all the financial transactions of the business.

4. To Provide The Basis For Preparing Final Accounts
Final accounts are prepared to show profit and loss and the financial position of the business at the end of an accounting period. These accounts are prepared by using the debit and credit of all ledger accounts. Therefore, since the trial balance is a statement of the debit and credit balances of the ledger accounts, it provides the basis for the preparation of the final accounts.

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Concept And Meaning Of Trial Balance

Trial balance is an important statement prepared under the double-entry system. The fundamental principle of the double-entry system is that for every amount of debit there is an equal amount of credit and vice verse. This principle provides a check on arithmetical accuracy of the recording of financial transactions in different books such as journal and the ledger. Such a check can be performed by preparing a statement called trial balance. Trial balance is a statement prepared taking up the debit and credit totals or balances of all ledger accounts on a particular date.
Trial balance is a statement which is prepared by using the debit and credit totals or balances of all ledger accounts with a view to ascertain the arithmetical accuracy of the recordings of the financial transactions of the business. Trial balance is prepared after closing all the ledger accounts and drawing balances therefrom a certain date. All the debit and credit totals or balances are arranged in debit and credit column together with the heads of account in a separate sheet of paper so as to ascertain whether the totals of debit and credit columns agree. If the two totals of trial balance agree, it is assumed that recordings of financial transactions in the journal and the ledger are arithmetically accurate. The trial balance can also be used to prepare the final accounts of the business.

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Preparation Of Bank reconciliation statement

The following procedures are followed while preparing the bank reconciliation statement:

* Compare cash book and pass book items.
* Give sign to all the items of cash book and pass book which are matched with each other.
* Make a list of unmatched items found in cash book and pass book.
* Prepare bank reconciliation statement taking balance either from cash book or pass book as a basis.
* Adjust the items which cause the disagreement in the balances. Add the items which have decreased the balance on the book with which reconciliation is to be made. On the contrary subtract the amount of those items which have increased the balance.

These procedures should be followed only when the cash book and pass book are to be compared. But if causes of differences are already given, the above procedures need not be followed.

If the causes of disagreement between the cash book and pass book balances are given, the bank reconciliation statement can be prepared either by taking the balance of cash book or pass book. The bank reconciliation statement can be prepared by using either of the following bases.

* Debit balance shown by cash book
* Credit balance shown by cash book (bank overdraft)
* Credit balance shown by pass book
* Debit balance shown by pass book (bank overdraft)

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Reasons For Disagreement Between Cash Book And Pass Book Balances

The following are the important causes or reasons for the disagreement between the balances shown by the pass book and cash book.

1. Cheques issued but not presented for payment.
2. Cheques paid or deposited but not collected and credited by the bank.
3. Interest credited by the bank but entered in cash book.
4. Bank charges, commission and interest in overdraft debited by the bank but not entered in cash book.
5. Expenses directly paid by the bank on behalf of customer but not recorded in cash book.
6. Incomes directly collected by the bank on behalf of customer but not recorded in cash book.
7. Amount directly deposited into the bank by debtors but not entered in cash book.
8. Cheque deposited into the bank but dishonored.
9. Dishonor of bill discounted with the bank.
10. Errors committed in the cash book and pass book.

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