Journal, Ledger, Trial Balance and Balance Sheet

The stages in book-keeping are

Recording the transactions in subsidiary books or books of prime entry
Posting the entries into the appropriate accounts in the main book called ledger.
Preparing the Trial balance, thereby profit and loss account and Balance sheet.

Journal

Journal is derived from the French word “Jour” which means a day. Journal, therefore, means daily record of business transactions. Journal is a book of original entry because transactions is first written in the journal from which it is posted to ledger at any convenient time.

Ledger

The ledger is the main book of account. The Journal is a subsidiary book. The word subsidiary means ‘giving additional help to. The journal helps a businessman to take the various transactions to the right place. i.e. to the appropriate accounts. The journal is the base, the ledger is the middle. The Balance sheet and Profit and loss account can be prepared from the main book of account, namely Ledger.

The entries are posted under appropriate accounts. All similar transactions must be brought together. Transactions relating to cash are grouped under cash account. Similarly the transactions with customers and suppliers (debtors and creditors) are grouped under appropriate personal accounts. Ledger is the main book of the business containing personal, Real and Nominal accounts of the business.

Trial Balance

The balances standing in the various accounts in the ledger at the end of a period are listed down in the form of a statement, showing debit balances in one column and credit balances in the other, known as a Trial balance.

The Trial Balance is nothing but a summary of the various transactions entered in the books of accounts and its preparation is based on the rule that ‘for every debit there is a corresponding and equal credit’.

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