Journal, Ledger and Trial Balance

The journal, ledger and trial balance are the three steps of recording accounts. The journal is where every transaction is first written as an entry with a debit and a credit. The ledger takes those entries and sorts them account by account, so each account shows its running total. The trial balance then lists the closing balance of every ledger to check that total debits equal total credits. Get these three right, and your Balance Sheet and Profit & Loss will be correct.

Step 1: The journal (first record)

A journal entry records a transaction with the account debited, the account credited, and the amounts. It follows the golden rules or the modern debit/credit rules.

Example: paid ₹5,000 rent by cash.

Rent A/c        Dr   5,000
   To Cash A/c            5,000
(Being rent paid by cash)

The journal is the diary of the business, in date order.

Step 2: The ledger (sort by account)

The journal is by date, but you also need to see everything that happened to one account, like all cash movements. Posting to the ledger copies each journal entry into its accounts.

The Cash account collects every debit and credit to cash, and shows a running balance. The Rent account collects all rent. This is how you see the total of any one account.

Step 3: The trial balance (check)

The trial balance is a list of every ledger account and its closing balance, split into debit and credit columns. If the bookkeeping is correct, the two columns are equal.

Equal totals mean the debits and credits balance. If they don't match, there's an error to find.

How they connect

Transaction → Journal entry → Post to Ledger → Trial Balance → Final Accounts

Each step feeds the next. Software like TallyPrime does the ledger and trial balance automatically once you record the entries.

Worked example (three transactions)

1. Started business with ₹1,00,000 cash → Cash Dr 1,00,000 / Capital Cr 1,00,000.
2. Paid rent ₹5,000 cash → Rent Dr 5,000 / Cash Cr 5,000.

After posting to the ledger: - Cash balance = 1,00,000 − 5,000 = ₹95,000 (debit). - Rent = ₹5,000 (debit). - Capital = ₹1,00,000 (credit).

Trial balance: debits 1,00,000 = credits 1,00,000. Balanced, as shown above.

Pro tips

• Write "Being…" narration under each journal entry to explain it; it helps later.
• A balanced trial balance doesn't guarantee zero errors (some mistakes still balance), but an unbalanced one definitely signals a mistake.
• In Tally, the trial balance is one click, so focus on recording entries correctly.

Common mistakes

• Posting to the wrong account. A rent payment posted to Salary throws off both accounts.
• Recording only one side. Every entry needs a debit and a credit; missing one unbalances the trial balance.
• Wrong amounts. A typo in one figure breaks the balance. Recheck totals.

Key takeaways

• Journal: first record of each transaction, with debit and credit.
• Ledger: sorts entries account by account and shows balances.
• Trial balance: lists all balances to check debits equal credits.
• The flow is transaction → journal → ledger → trial balance → final accounts.

Practice task

Take three transactions (capital introduced, goods bought for cash, a cash sale). Write the journal entries, post the Cash account to a ledger, and prepare a small trial balance. Check that the debit and credit totals match.

Learn the full accounting cycle and apply it in Tally in the ADFA program at HCI.