Assignment No.

2
Question 1: what is journal, ledger and
trial balance?

Answer: A journal is a chronological (arranged in

order of time) record of business transactions. A journal
entry is the recording of a business transaction in the
journal. A journal entry shows all the effects of a business
transaction as expressed in debit(s) and credit(s) and may
include an explanation of the transaction.
A ledger (general ledger) is the complete collection of all
the accounts and transactions of a company. The ledger
may be in loose-leaf form, in a bound volume, or in
computer memory. The chart of accounts is a listing of
the titles and numbers of all the accounts in the ledger.
The chart of accounts can be compared to a table of
contents. The groups of accounts usually appear in this
order: assets, liabilities, equity, dividends, revenues, and
expenses.
A trial balance is a listing of all accounts (in this
order: asset, liability, equity, revenue, expense) with
the ending account balance. It is called a trial
balance because the information on the form must
balance.
Question 2: What is Double entry system?

Answer: The double-entry system of accounting

or bookkeeping means that for every business
transaction, amounts must be recorded in a
minimum of two accounts. The double-entry system
also requires that for all transactions, the amounts
entered as debits must be equal to the amounts
entered as credits.
Double entry also means that the accounting
equation (assets = liabilities + owner's equity) will
always be in balance.

Advantages of Double Entry System

• This system increases the Accuracy of the accounting,
through the trial balance device
• Profit and loss suffered during the Year can be
calculated with details
• By following this system the company can keep the
accounting records in detail which eventually helps in
controlling.
• The recorded details can be used for comparison
purpose as well. Details of the first year can be
compared with the second year; deviations found any
during comparison can be worked on.

Question 3: Differentiate between Trading

and P&l account?

Answer: Trading Account is an account that is

prepared by the entities to know the profit earned or
loss suffered from trading activities. On the other
hand, Profit & Loss account is an account created to
ascertain the net profit or loss for the period. This
article excerpt deals with the difference between
trading and profit & loss account.

BASIS FOR PROFIT & LOSS

TRADING ACCOUNT
COMPARISON ACCOUNT

Meaning Trading account is an Profit & loss account is an

account which indicates account, representing the
the result of trading actual profit earned or loss
 BASIS FOR PROFIT & LOSS
TRADING ACCOUNT
COMPARISON ACCOUNT

activities, such as sustained by the business

purchase and sale of during the accounting
products. period.

Preparation It is prepared to ascertain It is prepared to ascertain

gross profit for the net profit for the period.
period.

Transfer of Balance of trading Balance of profit & loss

balance account is transferred to account is transferred to
Profit & Loss Account. Capital Account.

Accounts for Direct revenue and direct Operating and non-operating

expenses incomes and expenses.

Question 4: What is balance sheet? Draw

its format and content?

Answer: Balance sheet (also known

as the statement of financial position) is a financial
statement that shows the assets, liabilities and
owner's equity of a business at a particular
date. The main purpose of preparing a balance
sheet is to disclose the financial position of a
business enterprise at a given date.
Most of the information about assets, liabilities and
owners equity items are obtained from the adjusted
trial balance of the company. However, retained
earnings, a part of owners’ equity section, is
provided by the statement of retained earnings.

Question 5: What types of error are not

discovered by trial balance?
Answer: Such errors are not detected by a trial
balance and they are:
1. Errors of Principle:

An error of principle is an error which violates the fundamentals of

book-keeping. For instance, purchase of furniture is debited to
Purchase Account, instead of Furniture Account.

2. Errors of Omission:

If a transaction is completely omitted, there will be no effect on the

Trial Balance.

3. Posting to Wrong Account:

Posting an item to wrong account, but on the correct side. For

instance, if a purchase of Rs 200 from Ramu has been credited to
Raman, instead of Ramu and this error will not affect the
agreement of Trial Balance. Thus, Trial Balance will not detect
such an error.

4. Error of Amounts in Original Book:

If an invoice for Rs 632 is entered in Sales Book as Rs 623, the Trial

Balance will come out correctly, since the debit and credit have been
recorded as Rs 623. The arithmetical accuracy is there, but in fact
there is an error.

5. Compensating Error :

If one account in the ledger is debited with Rs 500 less and another
account in the ledger is credited Rs 500 less, these errors cancel
themselves. That is, one error is neutralized by similar error on the
opposite side.

Question 6: What is final accounts?

Answer: Final accounts give an idea about

the profitability and financial position of a business to
its management, owners, and other interested parties.
All business transactions are first recorded in
a journal. They are then transferred to a ledger and
balanced. These final tallies are prepared for a specific
period. The preparation of a final accounting is the last
stage of the accounting cycle. It determines the
financial position of the business. Under this, it is
compulsory to make a trading account, the profit and
loss account, and balance sheet.

The term "final accounts" includes the trading account,

the profit and loss account, and the balance sheet.