Balancing Off Accounts

Introduction

We will now continue from where we left off in topic 2.2. In order for us to generate a trial balance we first need to balance off the ledger accounts. Balancing the accounts simply means that both the debit and credit side of each account should be equal.

Objectives

Upon completion of this topic you should be able to:
1. State what balancing off means.
2. list the steps of balancing off an account.
3. identify what figures are transferred to the income statement and the balance sheet.

Balancing the Books

At the end of the financial accounting period a business must balance its books – the first step to summarizing and analyzing the financial position and income of the business. You have identified two sides of a ledger – a debit and a credit. All of your debit entries must equal your credit entries. You must balance off an account by taking a figure to the financial statements. All ledger accounts must be balances at the end of a period. Revenue and expense accounts do not have a brought down balance, since they are closed off and the figure transferred to the income statement. Other types of accounts use a balance brought down in order to determine the opening balance of the account in the subsequent trading period.

Steps to balancing off the accounts
1. Calculate the total of both side of the account (one side in the case of revenue and expense accounts.

2. The larger of the two totals are place in the total boxes on both side of the account (debit and credit totals). If the debit total is greater than the credit total then the account has a debit balance and vice versa for the credit balance.

3. You balance your account by introducing your balancing figure (which the difference between the largest and smaller figure) on the side the smallest amount. This figure should be your balance carried down at the end of the period and would be brought down at the start of the next period. The balances carried down figures are those that affect the balance sheet.

4. You bring down the balancing figure by going to the opposite side of the account and detailing the balance brought down, which is the same figure as the balance carried down figure. The balancing figure appears before the total boxes while the brought down figure appear under the total boxes on the opposite side to that of the balancing figure.

5. For revenue and expense accounts the difference between both sides of the account is the figure to be transferred to the income statement.

Balance sheet accounts have balancing figures, but revenue and expenses account do not. This is because the figures for revenue, expenses and drawing, when they are aggregated and offset in the income statement, to adjust the capital accounts. As such, the balances of those accounts appear in the capital account in the following period and do not just disappear in the next accounting period.

Now let’s balance off the accounts in unit 2.2

Sales Ledger
Oren Peters
Date	Details	Folio	Amount	Date	Details	Folio	Amount
2006			$	2006			$
Sept 25	Sales	SJ	249.00	29-Sep	Sales Returns	SRJ	137.70
				30-Sep	Balance	c/d	111.30
			249.00				249.00
1-Oct	Balance	b/d	111.30
Malika Diantha
Date	Details	Folio	Amount	Date	Details	Folio	Amount
2006			$	2006			$
Sept 30	Sales	SJ	422.85	23-Sep	Sales Return	SRL	72.00
				30-Sep	Balance	c/d	350.85
			422.85				422.85
1-Oct	Balance	b/d	350.85
Purchases Ledger
A.M. Bryden
Date	Details	Folio	Amount	Date	Details	Folio	Amount
2006			$	2006			$
25-Sep	Bank	CB	100.00	9-Sep	Purchases	PJ	248.80
26-Sep	Purchases Return	PRJ	59.00
30-Sep	Balance	c/d	89.80
			248.80				248.80
				1-Oct	Balance	b/d	89.80
AJ Wholesale
Date	Details	Folio	Amount	Date	Details	Folio	Amount
2006			$	2006			$
17-Sep	Purchases Return	PRJ	94.00	7-Sep	Purchases	PJ	272.80
27-Sep	Bank	CB	75.00
30-Sep	Balance	c/d	103.80
			272.80				272.80
				1-Oct	Balance	b/d	103.80
J Smith
Date	Details	Folio	Amount	Date	Details	Folio	Amount
2006			$	2006			$
30-Sep	Balance	c/d	1 500.00	1-Sep	Balance	b/d	1 500.00
				1-Oct	Balance	b/d	1 500.00
General Ledger
Sales Account
Date	Details	Folio	Amount	Date	Details	Folio	Amount
2006			$	2006			$
				21-Sep	Cash	CB	48.00
				30-Sep	cash	CB	104.00
30-Sep	Income Statement		823.85	30-Sep	Total Credit Sales	SJ	671.85
			823.85				823.85
				1-Oct	Balance	b/d	823.85
Purchases Account
Date	Details	Folio	Amount	Date	Details	Folio	Amount
2006			$	2006			$
30-Sep	Total Credit Purchases	PJ	521.60	30-Sep	Income Statement		521.60
1-Oct	Balance	b/d	521.60
Sales Return Account
Date	Details	Folio	Amount	Date	Details	Folio	Amount
2006			$	2006			$
30-Sep	Total Returns	SRJ	209.70	30-Sep	Income Statement		209.70
1-Oct	Balance		209.70

Purchases Return Account
Date	Details	Folio	Amount	Date	Details	Folio	Amount
2006			$	2006			$
30-Sep	Income Statement		153.00	Sept 30	Total Returns	PRJ	153.00
				1-Oct	Balance		153.00
Motor Van
Date	Details	Folio	Amount	Date	Details	Folio	Amount
2006			$	2006			$
1-Sep	Balance	b/d	2 500.00	30-Sep	Balance	c/d	2 500.00
1-Oct	Balance	b/d	2 500.00
Equipment
Date	Details	Folio	Amount	Date	Details	Folio	Amount
2006			$	2006			$
1-Sep	Balance	b/d	1 200.00	30-Sep	Balance	c/d	1 200.00
1-Oct	Balance	b/d	1 200.00
Capital
Date	Details	Folio	Amount	Date	Details	Folio	Amount
2006			$	2006			$
30-Sep	Balance	c/d	3 150.00	1-Sep	Balance	b/d	3 150.00
				1-Oct	Balance	b/d	3 150.00

Cash Book
Date	Details	Folio	Discount	Cash	Bank	Date	Details	Folio	Discount	Cash	Bank
2006			$	$	$	2006			$	$	$
1-Sep	Balance	b/d		150.00	800.00	25-Sep	AM Byden	PL			100.00
21-Sep	Sales	Gl		48.00		27-Sep	AJ Wholesale	PL			75.00
30-Sep	Sales	GL		104.00		30-Sep	Balance	c/d		302.00	625.00
				302.00	800.00					302.00	800.00
1-Oct	Balance	b/d		302.00	625.00

Take note that at the end of the month those accounts with balances to be transferred to the Income Statement (Profit and Loss Account) use the word income statement instead of balance c/d.


Assignment

Let us continue the unit 2 assignment from topic 2.1 and 2.2. You have recorded the transactions in the books and original entry and post them to the various ledgers. You now need to balance off those ledger accounts.