Ledger and Trial Balance
Senior 6 · Entrepreneurship
Ledger and Trial Balance
Lesson 1 of 4
25 min
Mutoni sells cement, iron sheets, paint and nails from a hardware shop in Huye town. Many of her customers are small building contractors who take materials on credit and pay later. Her bookkeeper writes every invoice into the sales journal and every payment into the cash book, carefully and in date order. (An illustrative business: the names and figures in this unit are invented.)
On 28 March the manager of Umucyo Builders phones: "How much do we still owe you?" The bookkeeper has to turn back through four weeks of journals and the cash book, hunting for every line that mentions Umucyo Builders, and then add and subtract them. Twenty minutes later she is still not sure she has found them all.
Think about it: the journals are complete and correct. So why are they the wrong place to look for the answer?
In S5 you recorded transactions in the books of prime entry: the sales, purchases and returns journals, the cash book and the general journal. They are written in date order, so they answer the question "what happened on 14 March?" They cannot quickly answer "what happened to Umucyo Builders this month?", because its entries are scattered across several books and many pages.
The ledger answers that second kind of question. Every item the business needs to track (each customer, each supplier, cash, sales, rent, the owner's capital) gets its own page, called an account, and every entry about that item is copied to it. Moving an entry from a book of prime entry to its account is called posting. The journals record in date order; the ledger classifies by item.
Definition
Ledger: the book (or computer file) that holds all the accounts of a business. It is the main book of account: every transaction recorded in a book of prime entry ends up in it.
Example: Mutoni's ledger holds an account for cash, one for sales, one for rent, one for each credit customer and one for each credit supplier.
Definition
Ledger account (or simply account): the record, in the ledger, of every transaction affecting one item, arranged in two sides. The left side is the debit side (Dr) and the right side is the credit side (Cr).
Example: the Umucyo Builders account shows everything Umucyo bought on credit (debit side) and everything it paid or returned (credit side).
Definition
Posting: copying each entry from a book of prime entry to the correct side of the correct ledger account. The page number of the source book is written in a folio column (for example SJ 4 for sales journal page 4), so that any entry can be traced back to where it came from.
Example: the 8 March credit sale to Umucyo Builders is posted from the sales journal to the debit side of Umucyo Builders' account.
A business with a few dozen accounts can keep them all in one book. As it grows, the accounts are divided into separate ledgers, so that different clerks can work on them at the same time and each kind of question has its own book. Three ledgers are standard.
| Ledger | What it holds | Posted mainly from |
|---|---|---|
| Sales ledger (debtors' ledger) | A personal account for each customer who buys on credit | Sales journal, returns inwards journal, cash book (payments received) |
| Purchases ledger (creditors' ledger) | A personal account for each supplier who sells to the business on credit | Purchases journal, returns outwards journal, cash book (payments made) |
| General ledger (nominal ledger) | Every other account: assets such as premises and fittings, capital and drawings, loans, sales, purchases, returns, and all incomes and expenses | The TOTALS of the journals, the cash book and the general journal |
Two further points complete the picture:
| Class | What it records | Examples in Mutoni's shop |
|---|---|---|
| Personal accounts | People and organisations the business deals with, including the owner | Umucyo Builders (a debtor), Kivu Building Supplies (a creditor), Capital and Drawings (the owner) |
| Real accounts | Things the business owns | Cash, bank, shop fittings, delivery motorcycle, premises |
| Nominal accounts | Incomes, expenses, gains and losses | Sales, purchases, rent, wages, electricity, commission received |
Definition
Debtor and creditor: a debtor is a person or business that owes money to the business, usually a credit customer; its account normally has a debit balance. A creditor is a person or business that the business owes, usually a credit supplier; its account normally has a credit balance.
Example: Umucyo Builders, which has not yet paid for all its cement, is Mutoni's debtor. Kivu Building Supplies, which delivered cement she has not yet paid for, is her creditor.
1. The T-account (two-sided) format. The account name goes at the top, debits on the left and credits on the right. The Details column always names the other account in the double entry, so every line tells you where the other half of the transaction went. Here are Umucyo Builders' March transactions: a credit sale on 8 March, goods returned on 16 March, and a bank transfer on 20 March.
| Umucyo Builders account (sales ledger) | |||||
|---|---|---|---|---|---|
| Dr (debit side) | Cr (credit side) | ||||
| Date | Details | Frw | Date | Details | Frw |
| 8 Mar | Sales | 850,000 | 16 Mar | Returns inwards | 50,000 |
| 20 Mar | Bank | 500,000 | |||
2. The running-balance (three-column) format. This is how bank statements and accounting software show an account: a debit column, a credit column and a balance that is updated after every line.
| Umucyo Builders account (sales ledger) | ||||
|---|---|---|---|---|
| Date | Details | Dr (Frw) | Cr (Frw) | Balance (Frw) |
| 8 Mar | Sales | 850,000 | 850,000 Dr | |
| 16 Mar | Returns inwards | 50,000 | 800,000 Dr | |
| 20 Mar | Bank | 500,000 | 300,000 Dr | |
Both formats hold exactly the same information. The running balance answers the manager's phone call at a glance: Umucyo Builders owes Frw 300,000.
Tip
The Details column points to the partner. In Umucyo Builders' own account the details never say "Umucyo Builders": they say Sales, Returns inwards and Bank, the accounts that hold the other half of each entry. If you can read the Details column, you can rebuild the double entry.
Worked example 1: which ledger, which class?
Say in which ledger Mutoni keeps each account, and whether it is personal, real or nominal.
| Account | Ledger | Class | Why |
|---|---|---|---|
| Umucyo Builders | Sales | Personal | a debtor |
| Kivu Building Supplies | Purchases | Personal | a creditor |
| Shop fittings | General | Real | owned |
| Rent | General | Nominal | an expense |
| Sales | General | Nominal | an income |
| Capital | General (or private) | Personal | owed to the owner |
| Cash | Cash book (it is the cash account) | Real | money held |
Worked example 2: from T-account to running balance
Kivu Building Supplies' account in Mutoni's purchases ledger shows, on the credit side, 3 Mar Purchases Frw 1,500,000, and on the debit side, 12 Mar Returns outwards Frw 100,000 and 22 Mar Bank Frw 900,000. Redraw it with a running balance and state what Mutoni owes.
Step 1: order the entries by date. 3 March (credit), 12 March (debit), 22 March (debit).
Step 2: update the balance line by line. A credit increases what Mutoni owes; a debit reduces it.
| Date | Details | Dr (Frw) | Cr (Frw) | Balance (Frw) |
|---|---|---|---|---|
| 3 Mar | Purchases | 1,500,000 | 1,500,000 Cr | |
| 12 Mar | Returns outwards | 100,000 | 1,400,000 Cr | |
| 22 Mar | Bank | 900,000 | 500,000 Cr |
Step 3: interpret. . The balance is a credit balance, so it is a liability: Mutoni still owes Kivu Building Supplies Frw 500,000.
Warning
Debit and credit do not mean good and bad, or plus and minus. They mean only left and right. A debit increases an asset such as cash but decreases a liability such as a creditor. Always ask which class of account you are in before you decide whether a debit makes it bigger or smaller.
Accounting Stuff, "T-Accounts: Explained in (Almost) 2 Minutes!" Watch how each transaction appears in two T-accounts, once on the debit side and once on the credit side. The video uses US dollars; the method is the same in francs.
Practice
Sources and credits
Written by Ganzaa: the Huye hardware-shop case, the flowchart, the tables, the worked examples and the practice items. The businesses, names and figures are illustrative (2026).
