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  1. This answer was edited.

    Yes. Let's take a set of transactions and prepare all the requisite information asked. Following are the transactions for the period April 20x1 to March 20x2 in the books of Michael Traders 1-Apr Michael started business with cash 600,000, cash at Bank of America 700,000, furniture 200,000. 1-Apr PuRead more

    Yes.

    Let’s take a set of transactions and prepare all the requisite information asked.

    Following are the transactions for the period April 20×1 to March 20×2 in the books of Michael Traders

    1-AprMichael started business with cash 600,000, cash at Bank of America 700,000, furniture 200,000.
    1-AprPurchased Plant & Machinery worth 250,000 by cheque.
    25-AprPurchased goods from ABC Ltd worth 800,000 @10% trade discount.
    5-MayCash Sales 1,000,000 @5% trade discount to XYZ Traders
    15-MayDeposited cash with Bank of America 500,000.
    5-JunPaid ABC Ltd 300,000 in cash.
    10-JunReceived commission 75,000 by cheque.
    25-JunCash Purchases 250,000.
    5-JulSold goods to XYZ Traders 475,000.
    15-JulReceived 275,000 by cheque from XYZ Traders.
    5-AugLoan taken from Bank of America 200,000
    25-AugPurchased goods from ABC Ltd 50,000.
    27-AugWithdrew cash from bank 10,000.
    5-SepReceived commission 55,000 in cash.
    10-SepPaid ABC Ltd 70,000 by cheque.
    20-SepReceived 90,000 in cash from XYZ Traders.
    1-OctBank loan repaid 50,000.
    25-OctCash Purchases 25,000.
    5-NovSold goods to XYZ Traders 47,000.
    15-NovWithdrew cash from bank 15,000.
    5-DecReceived interest from bank 5,000.
    25-DecPurchased goods from ABC Ltd 75,000.
    5-JanCash Sales 100,000.
    15-JanDeposited cash with Bank of America 35,000.
    25-FebCash Purchases 450,000.
    28-FebOffice was taken on rent in the month of Feb. Office rent paid in cash 50,000.
    28-FebEmployees were hired in the month of Feb. Paid salary by cheque 30,000 & cash 30,000 for the month of Feb 20×2.
    5-MarSold goods to XYZ Traders 675,000.
    31-MarPaid office rent by cheque 50,000.
    31-MarPaid salary in cash 30,000 for the month of March 20×2.

    You are required to:
    (i) Journalize the above transactions and post them in Ledgers and prepare a Trial Balance.

    (ii) Prepare Trading A/c, Profit & Loss A/c and Balance Sheet taking into consideration:
    1. Closing Stock as on 31st March 20×2 is 200,000.
    2. Salary outstanding for the month of March 20×2 is 30,000.
    3. [email protected]% to be charged on Furniture & Fixtures and @15% on Plant & Machinery.

    1. Journal Entries

    April & May Journal

    June-Aug Journal

    Sep-Nov Journal

    Dec-Jan Journal

    Feb-March Journal

    2. Ledgers

    Ledger-Micheal Capital A/c

    Ledger-Purchases & Sales A/c

    Ledger-Furniture A/c & Plant & Machinery A/c

    Ledger-Creditor & Debtor A/c

    Ledger-Bank Loan A/c

    Ledger-Salary & Office Rent A/c

    Ledger-Interest & Commission received A/c

    Ledger-Cash A/c

    Ledger-Bank of America A/c

    3. Trial Balance

    Trial Balance

    4. Trading A/c & Profit and Loss A/c

    Trading A/c and Profit & Loss A/c

    5. Balance Sheet

    Balance Sheet

    An excel sheet of the entire transactions along with the requisite information asked has been attached for your reference.

    30-transactions-of-Journal-Ledger-Trial-Balance-Financial-Statements

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  1. This answer was edited.

    To begin with, let me familiarize you with the meaning of the term Ledger Balancing. What is Ledger Balancing? Balancing of Ledger accounts means totalling both the sides of ledger account, finding the difference between greater total & smaller total and then recording the difference on the smalRead more

    To begin with, let me familiarize you with the meaning of the term Ledger Balancing.

    What is Ledger Balancing?

    Balancing of Ledger accounts means totalling both the sides of ledger account, finding the difference between greater total & smaller total and then recording the difference on the smaller side.

    If Debit side > Credit side, then we say that the ledger account has “Debit Balance”.
    If Credit side > Debit side, then we say that the ledger account has “Credit Balance”.

    Now, let’s move forward to discuss the question asked.

    Why should a ledger be balanced?

    Balancing a ledger account will help you with the following-

    1. Necessary for preparation of trial balance

    Trial Balance is a list of the debit and credit balances of all the ledger accounts prepared by the entity as on a specific date. Without balancing the ledger accounts, it is impossible to prepare the trial balance of an entity.

    2. Necessary for preparation of financial statements

    Balancing of ledger accounts helps to prepare profit & loss account and balance sheet so as to ascertain the profit or loss and financial position of the business.

    3. To determine the cash available

    The amount of balance in Cash A/c gives an idea of the amount of cash available with the organization. The balance determined is compared with the actual cash available in the cash box. Discrepancies, if any are further investigated.

    4. To determine the value of assets

    Organizations need to know the book value of their tangible and intangible assets eg. plant & machinery, furniture, software etc at the end of a period. So, the value of assets as at a specific date can be determined only after balancing the asset ledger accounts. Assets account usually have a debit balance.

    5. To ascertain the total expense and income

    Ledger balancing of nominal accounts such as expenses  eg. purchase, salary, professional fees, etc and incomes eg. sales, interest earned, etc will indicate the amount of expenses incurred and income earned during a specific period.

    This will help in ascertaining the profit earned or loss incurred by the entity as the balances of nominal accounts get transferred to the statement of profit & loss. Also, the entity can make strategies on reducing the expenses if the current period expenses exceed the previous period expenses.

    6. To ascertain the debt outstanding & the amount outstanding to creditors

    Balancing ledger accounts pertaining to bank loans or other loans accepted will help you determine the principal amount outstanding at a given date.

    Also, balancing the supplier’s accounts will help you ascertain whether the amount is payable to the supplier (credit balance) or whether you have already made him advance payments but the corresponding goods or services are yet to be received (debit balance).

    7. To determine the amount receivable from debtors

    Balancing the debtor’s accounts will help you ascertain the amount due from your debtor (debit balance) as at a particular date. In case, the debtors have already made advance payments but you haven’t rendered the corresponding goods or services, then the account will present a credit balance.

    Hope the above given points give you an insight of the question asked – why should a ledger be balanced.

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  1. Yes, the cash book is both a journal and a ledger.  To make the concept simpler, I would like to familiarize you with the meaning of journals and ledgers, which shall help in determining the reasons for a cashbook to be both a journal as well as a ledger. Journal A journal is a descriptive financialRead more

    Yes, the cash book is both a journal and a ledger. 

    To make the concept simpler, I would like to familiarize you with the meaning of journals and ledgers, which shall help in determining the reasons for a cashbook to be both a journal as well as a ledger.

    Journal

    A journal is a descriptive financial record of a business that is used for future reconciling as well as a transfer to other books of accounts such as the ledger. It is a book of original entry.

    Cashbook is considered to be a journal because all the cash/bank receipts and payments are recorded in this book in a descriptive form similar to journal posting.

    Ledger

    In simple words, a ledger refers to recording individual accounts in a summarized form that are posted from a journal. It is a book of principal entry.

    A cashbook is considered to be a ledger because all the cash transactions that are made during a particular financial period are recorded in this book in a chronological order. When a cashbook is prepared there is no need for a cash a/c as the book serves the same purpose and therefore can be used as a substitute.

    Format of a Cashbook

    Cashbook

    DateParticularsV.No.L.F.CashDateParticularsV.No.L.F.Cash
     To Capital a/c    By Advertisement a/c   
     To Sales a/c    By Purchases a/c   
     To Mr. C’s a/c    By Stationery a/c   
     To Bank a/c    By Office expenses a/c   
          By Rent a/c   
          By Salary a/c   
          By balance c/d   
              

    Note: As we can see the format and posting of a cashbook are similar to that of journal and ledger accounts.

    Hope this helps.

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