How to Prepare JAIIB Accounting and Finance for Banking – Day 2

DAY 2 Prepare JAIIB Accounting and Finance for Banking 2022

Trial Balance & Ledger

Stage Within an Accounting Cycle.

Identify a transaction
Prepare voucher for evidence
Record a journal entry
-Prepare a ledger
Balance the ledger
Execute all adjustments
-Prepare a trial balance
Prepare financial statements


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Ledger – It is prepared after recording journal entries, consequently, it acts as a support to prepare the trial balance.

Trial Balance – It is the next step after adjusting and closing the ledger accounts, therefore acting as the groundwork for the preparation of financial statements.

Difference Between Ledger & Trial Balance

Although ledger and trial balance are both integral parts of the same accounting cycle, there is still a considerable difference between ledger and trial balance. They both have their respective relevance and timing in the business cycle. In short, a ledger is an account wise summary of all monetary transactions, whereas a trial balance is the debit and credit balance of such ledger accounts.

Traditionally a ledger was prepared in a physical book with a separate page for each account and a trial balance was derived from these accounts. In the modern days, all the data is stored in ERPs with the help of computers.


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Ledger Vs Trial Balance in Table Format

Ledger Trial Balance
A ledger is an account wise summary of all monetary transactions maintained in a classified form. It is a statement of debit and credit balances that are extracted from ledger accounts at a specified time.
It is also known as the principal book of accounts and book of final entry. There is no formal synonym of a trial balance, however, it is informally referred to as TB.
Ledger acts as a foundation to create a trial balance for the business. Trial balance acts as a foundation to create financial statements for the business.
It is essentially a summarized form of all journal entries. It is essentially a summarized form of all ledger accounts.
Details of what is a ledger and a sample format are also provided here. Details of what is a trial balance and a sample format are also provided here.
There are different types of ledgers such as Debtor’s ledger, Creditor’s ledger, General ledger, etc. There are no subtypes of a trial balance. An adjusted trial balance is made to fix partial & improper transactions.


Trading and Profit and Loss Account
It is motto of every business to know Profit or Loss from the business during current financial year.

  • Trading Account includes, Opening Stock, Purchases and all Direct Expenses. The
    resultant figure is always Gross Profit
  • Profit and Loss Account is started with Gross Profit or Gross Loss. The Administrative
    and Selling Expenses which are also called Indirect Expenses are deducted. Incomes
    are credited. The resultant figure is always Net Profit.

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Principles & Practices of Banking Syllabus 2022 JAIIB PPB Study Material PDF 2022 JAIIB PPB Notes PDF 2022 JAIIB PPB Mock Test PDF 2022
Accounting & Finance for Bankers Syllabus 2022 JAIIB AFB Study Material PDF 2022 JAIIB AFB Notes PDF 2022 JAIIB AFB Mock Test PDF 2022
Legal & Regulatory aspects of Banking Syllabus 2022 JAIIB LRAB Study Material PDF 2022 JAIIB LRAB Notes PDF 2022 JAIIB LRAB Mock Test PDF 2022

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What is a Trading Account?

A trading account helps in determining the gross profit or gross loss of a business concern, made strictly out of trading activities. Trading involves buying and selling activities. In the trading account, the cost of goods sold is subtracted from net sales for the period to calculate gross profit. Only direct revenue and direct expenses are considered in it. Trading account is prepared mainly to know the profitability of the goods bought by the businessman.

The difference between selling price and cost of goods sold is the earning for the businessman, which is also known as gross profit. Whereas, net profit means all revenues minus all expenses including the cost of goods sold, the selling, general and administrative expenses and the non-operating expenses. Thus in order to calculate the gross earning, it is necessary to know the cost of goods sold and sales figures. Also,

Gross Profit = Sales – COGS (Sales + Closing Stock) – (Stock in the beginning + Purchases + Direct Expenses)

Items included on the debit side are opening stock, purchases, and direct expenses and on the credit side are sales and closing stock. The resultant figure is either gross profit or gross loss.

Closing entries for Gross Profit/Loss

In case of gross profit:

Trading A/c -Dr.

To Profit and Loss A/c

And, in case of gross loss:

Profit and Loss A/c -Dr.

To Trading A/c

What is the Profit and Loss Account?

The profit and loss account is opened by recording the gross profit on credit side or gross loss on the debit side.

For earning the net profit, a businessman has to incur many more expenses in addition to the direct expenses. Those expenses are deducted from profit or added to gross loss and thus, the resultant figure will be net profit or net loss.

Expenses included in the profit and loss account are Selling and distribution expenses, Freight & carriage on sales, Sales tax, Administrative Expenses, Financial Expenses, Maintenance, depreciation and Provisions and more. On the credit side, Discount received, Commission received, Profit on sale of assets and more appear.

Closing entries for Net Profit/Loss

In case of a net profit:

Profit and Loss A/c -Dr.

To Capital A/c

And, in the case of net loss:

Capital A/c -Dr.

To Profit and Loss A/c

ALSO STUDY in Day 2: Cash Book and Subsidiary Books – Financial Books AFB



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