A source document provides evidence for a transaction. Examples include invoices, receipts, credit notes and bank advice. The document's purpose matters: an invoice records a charge for goods or services, while a receipt acknowledges a payment. Reliable records link accounting entries to supporting evidence so that another person can follow the transaction and check its treatment.
Books of original entry organise transactions before posting to ledger accounts. A sales day book commonly records credit sales of goods normally traded by the business; a purchases day book records credit purchases of such goods. A cash book records cash and bank transactions and also serves as a ledger for those accounts. A general journal is useful for entries that do not fit the specialised books, including some corrections and adjustments. A cash sale does not belong in a credit sales day book merely because it is a sale.
A ledger groups entries by account. Each account shows its debits, credits and balance. Posting transfers the information from original entry to the relevant ledger accounts. A journal entry normally identifies the accounts, amounts and a short narration explaining the transaction. The rule remains that total debit amounts equal total credit amounts, even when an entry affects more than two accounts.
A trial balance lists ledger balances and compares total debit balances with total credit balances at a date. Agreement provides an arithmetic check on the double-entry records, but it does not prove that all transactions are complete or correctly classified. An entire transaction omitted from both sides leaves the totals equal. Posting a payment to the wrong expense account can also leave the trial balance balanced.
An error of principle uses an inappropriate class of account, such as charging the cost of equipment to a routine expense account. An error of commission can involve the correct type of account but the wrong individual account. Complete reversal records both debit and credit on the wrong sides. Compensating errors may offset each other numerically. When locating mistakes, compare the source evidence, original entry and ledger posting rather than assuming that a balanced trial balance ends the checking process. Explain the specific effect of an error before deciding whether it changes the trial balance difference.
From evidence to a set of accounts
A source document provides evidence of a transaction. Books of original entry organise transactions before they are posted to ledger accounts. The ledger groups entries by account, while the trial balance lists the ledger balances at a particular date. These stages serve different purposes. An invoice describes a transaction, a day book collects a class of transactions, and a ledger shows the cumulative effect on a named account. A trial balance is therefore neither a bank statement nor a complete statement of .
Key definition
Trial balance
Therefore neither a bank statement nor a complete statement of profit.
Exam keywords:thereforeneitherstatementcomplete
A credit sales invoice for goods for resale is normally entered in the sales day book in a simple periodic bookkeeping system. The customer's personal account is debited and the total is credited to sales. Credit purchases of trading goods go through the purchases day book, with suppliers credited and purchases debited. A cash sale belongs in the cash book rather than the credit sales day book. Purchases of non- should not silently enter the trading-goods purchases total merely because an invoice was received.
Journals and ledgers work together
The general journal records entries that do not fit a specialised book, such as an opening entry or some corrections and transfers. A clear entry identifies the date, debit account, credit account, amounts and a concise narration. The journal does not replace the double-entry requirement. Each posting must still have equal total debits and credits. Compound entries can involve several accounts, but the two totals must agree. A list of amounts with no account names is not an adequate journal solution.
Personal accounts record amounts relating to customers and suppliers. Impersonal accounts include real accounts for and nominal accounts for incomes and expenses in the traditional classification. Some syllabuses use different modern groupings, so understand the underlying function rather than relying on one label alone. A customer can have a credit balance after an overpayment, and a supplier can have a debit balance after an overpayment or return. A normal balance is a useful expectation, not a rule that every exceptional balance is impossible.
Balancing an account
To balance an account, total each side, insert the balancing figure on the smaller side and bring the balance down on the opposite side for the next period when appropriate. Suppose the cash account has receipts totalling ₦90,000 and payments totalling ₦62,000. The closing debit balance is ₦28,000. The balance carried down is entered on the credit side to make the two totals equal; the balance brought down appears on the debit side. This layout convention does not turn the cash asset into a liability.
Distinguish balancing from closing an income or expense account into the calculation. An asset or liability balance normally continues to the next period. A period's income and expense accounts are transferred to determine and begin afresh for the next period under the system used. Dates and headings matter because users need to know whether a balance belongs to a day, a month or a financial year. A correct number with the wrong date can describe the wrong accounting position.
Extracting and interpreting a trial balance
A trial balance lists debit balances in one column and credit balances in another. The totals should agree if postings and arithmetic follow double entry. In a simple example, Bank ₦70,000 and Equipment ₦30,000 as debits can balance Capital ₦80,000 and Loan ₦20,000 as credits. Do not list the total of each side of every ledger account; list the net balance. Including both the carried-down and brought-down forms of the same balance would count it twice.
Agreement detects some errors but cannot prove that all transactions are recorded correctly. Complete omission, using the wrong account with the correct side, an error of principle, equal errors of original entry and complete reversal can preserve equality. A single-sided omission or an incorrect total on one side normally causes disagreement. A suspense account may temporarily hold a difference while it is investigated, but its presence does not solve the error or justify publishing incorrect statements. The correction must address the actual faulty posting.
Careful presentation and self-check
Use clear ledger titles and preserve the distinction between an amount owed by a customer and an amount owed to a supplier. Include currency units and show calculations when totals are derived. Cross-references help connect original documents, books and ledger entries. In computerised records, the system may perform arithmetic automatically, but incorrect source data or an inappropriate account code can still produce misleading reports. Automation reduces some routine work; it does not remove the need for classification and review.
Self-check: recording a cash equipment purchase as a debit to Repairs and a credit to Cash can leave the trial balance equal, although the classification is wrong. Self-check: a credit sale recorded twice on both sides can also preserve equality while overstating sales and receivables. Explain which accounts are affected and why the arithmetic check fails to expose the error. This is more precise than saying a balanced trial balance is accurate or, at the other extreme, that it has no usefulness.