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Corporate Accounting and Financial Management · Introduction to Accounting

Journal, Ledger and Trial Balance: The Accounting Process

Updated 11 October 2026 · Fact-checked

The accounting process records each business transaction in a journal using double entry, posts it to ledger accounts, balances each account and lists the balances in a trial balance. If total debits equal total credits, the books are arithmetically accurate. Apply the debit and credit rules to each account involved.

Understand Accounting Process: Journal, Ledger and Trial Balance

Accounting begins with a transaction: an event that can be measured in money and changes your assets, liabilities, capital, income or expenses. Signing a contract is not a transaction. Buying goods for ₹50,000 is.

Under the double entry system, every transaction has two effects. One account is debited and another is credited, for the same amount. So total debits always equal total credits. This is why the trial balance can check your work.

The first record is the journal. It is the book of original entry. You write the date, the account debited, the account credited, the amount and a short narration. Every entry is made in date order.

Next, you post each journal entry to the ledger. The ledger has one account for each person, asset, expense or income. After posting, you total each account and find its balance. This is the book of final entry.

Finally, you list all ledger balances in the trial balance. Debit balances go in one column and credit balances in the other. If the two totals agree, the ledger is arithmetically correct. It does not prove the books are free from all errors. The trial balance then feeds the final accounts.

Key rules to remember

Accounting cycle order
Transaction → Journal → Ledger → Trial Balance → Adjustments → Final Accounts
Learn the order. Questions often ask which step comes next.
Personal account rule
Debit the receiver; Credit the giver
Applies to persons, firms, companies and also to capital and drawings.
Real account rule
Debit what comes in; Credit what goes out
Applies to assets such as cash, stock, machinery and land.
Nominal account rule
Debit all expenses and losses; Credit all incomes and gains
Applies to rent, salaries, interest, commission and discount.
Modern (accounting equation) rule
Assets = Liabilities + Capital. Debit increase in assets and expenses; credit increase in liabilities, capital and income
Reverse the effect to decrease. It gives the same answers as the golden rules.
Trial balance check
Total of debit balances = Total of credit balances
Agreement shows arithmetical accuracy only.
Ledger balance
Balance = Larger side total − Smaller side total
If the debit side is larger, the balance is a debit balance.

How to solve Accounting Process: Journal, Ledger and Trial Balance questions

Use this method for any question that asks for journal entries, ledger accounts or a trial balance.

  1. 1Read each transaction and decide whether it is a business transaction measurable in money.
  2. 2Identify the two accounts affected and classify each as personal, real or nominal.
  3. 3Apply the rule to decide which account is debited and which is credited.
  4. 4Write the journal entry with date, debit account (Dr.), credit account (To), amount and a brief narration.
  5. 5Post to ledger accounts. Write the other account's name on the opposite side as the particular.
  6. 6Total each ledger account and find its balance. Carry the balance down.
  7. 7List balances in the trial balance. Assets and expenses go on the debit side. Liabilities, capital and incomes go on the credit side.
  8. 8Total both columns and check that they agree. If they do not, recheck posting and balances.

Quickest way: Increase-or-decrease shortcut

When to use it: Use it when a question has many transactions and little time, especially a journal-only or trial balance question.

  1. For each transaction, ask only: which two accounts and does each go up or down.
  2. Assets and expenses: increase is Dr, decrease is Cr.
  3. Liabilities, capital and income: increase is Cr, decrease is Dr.
  4. In a trial balance question, place each item by its nature: assets and expenses Dr; liabilities, capital and income Cr.
  5. Add both columns once. If they differ, find the difference and check for a missing or doubled item.

Common mistakes in Accounting Process: Journal, Ledger and Trial Balance

  • Debiting or crediting the wrong side for drawings and capital

    Students treat drawings as an expense.

    Fix: Drawings reduce capital. Debit drawings when the owner takes cash or goods. Capital has a credit balance.

  • Putting the debtor on the credit side of the trial balance

    Students confuse who owes with who is owed.

    Fix: Debtors are assets and have debit balances. Creditors are liabilities and have credit balances.

  • Journalising non-transactions

    Students record events such as placing an order or an interview for a job.

    Fix: Record only events that change financial position and can be measured in money.

  • Forgetting the narration or recording entries out of date order

    Students rush and treat the narration as optional.

    Fix: Always write a one-line narration and keep entries in date order.

  • Assuming a tallied trial balance means no errors

    Students stop checking once the totals agree.

    Fix: Errors such as omission of a whole entry, wrong account with correct amount, or compensating errors do not affect agreement.

  • Taking the closing balance to the wrong side

    Students write the balancing figure on the larger side.

    Fix: Write the balancing figure on the smaller side so both sides total equally. The balance then belongs to the opposite side.

Worked examples

Example 1

Pass journal entries for the following transactions of Sharma Traders in April: (1) 1 April: Started business with cash ₹2,00,000. (2) 3 April: Purchased goods for cash ₹40,000. (3) 10 April: Sold goods on credit to Gupta ₹30,000. (4) 20 April: Paid rent ₹5,000.

Show the solution
  1. 1 April: Cash is an asset coming in, so debit it. Capital is owed to the owner, so credit it.
  2. 3 April: Purchases is an expense-type nominal account, so debit it. Cash goes out, so credit it.
  3. 10 April: Gupta is a debtor who receives goods, so debit Gupta. Sales is income, so credit it.
  4. 20 April: Rent is an expense, so debit it. Cash goes out, so credit it.

Answer: 1 Apr: Cash A/c Dr. ₹2,00,000 To Capital A/c ₹2,00,000 (business started). 3 Apr: Purchases A/c Dr. ₹40,000 To Cash A/c ₹40,000 (goods purchased for cash). 10 Apr: Gupta A/c Dr. ₹30,000 To Sales A/c ₹30,000 (goods sold on credit). 20 Apr: Rent A/c Dr. ₹5,000 To Cash A/c ₹5,000 (rent paid).

Example 2

Post the entries of Example 1 to the Cash Account, balance it, and prepare a trial balance as on 30 April.

Show the solution
  1. Cash A/c debit side: Capital ₹2,00,000. Credit side: Purchases ₹40,000 and Rent ₹5,000.
  2. Credit total is ₹45,000. Balance = ₹2,00,000 − ₹45,000 = ₹1,55,000 debit balance.
  3. Other balances: Capital ₹2,00,000 Cr; Purchases ₹40,000 Dr; Gupta ₹30,000 Dr; Sales ₹30,000 Cr; Rent ₹5,000 Dr.
  4. Debit column: Cash 1,55,000 + Purchases 40,000 + Gupta 30,000 + Rent 5,000 = ₹2,30,000.
  5. Credit column: Capital 2,00,000 + Sales 30,000 = ₹2,30,000.

Answer: Cash A/c closing balance is ₹1,55,000 (Dr). Trial balance totals: debit ₹2,30,000 and credit ₹2,30,000. They agree, so the books are arithmetically accurate.

Exam tips

  • Write the full format in journal answers: date, Dr. line, To line, amount and narration. Marks are given for presentation.
  • In trial balance questions, classify every item first. Opening stock goes on the debit side; closing stock given outside the trial balance does not.
  • If the trial balance does not tally, show the difference and place it in a suspense account only if the question asks for that.
  • Keep the golden rules and the modern rule handy, and use one consistently throughout an answer.
  • Learn what a trial balance cannot detect. Short theory questions on this are common.

Practice questions from Introduction to Accounting

Accounting Process: Journal, Ledger and Trial Balance in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Accounting Process: Journal, Ledger and Trial Balance: frequently asked questions

What are the golden rules of accounting?

For personal accounts, debit the receiver and credit the giver. For real accounts, debit what comes in and credit what goes out. For nominal accounts, debit expenses and losses and credit incomes and gains.

What is the difference between journal and ledger?

The journal records transactions in date order as they happen. The ledger groups them account by account. The journal is the book of original entry, and the ledger is the book of final entry.

Why does a trial balance not prove the books are correct?

It checks only that total debits equal total credits. Errors of omission, errors of principle and compensating errors leave the totals equal. So the books can still contain mistakes.

What are the steps of the accounting cycle?

Identify the transaction, record it in the journal, post it to the ledger, balance the accounts and prepare the trial balance. Then make adjustments and prepare the final accounts.