10 Balancing off Accounts and Trial Balance
I. How total effect of an account is known?
? So far, we just know how to record the transactions in the accounts of each asset, liability, capital and
revenue and expenses item by means of debit and credit entries.
? However, in order to know the total effect of the transactions on each particular account for a period,
we need to find out the balance of each account.
? “Balance” is an arithmetical difference between the two sides of an account.
II. How accounts are balanced off? / How the balances of accounts are found?
Accounts are usually balanced off at the end of a period (e.g. month end or year end) with the following
1. Add up both sides to find out their totals
2. Deduct the smaller total from the larger total to find the difference (balance) 3. Enter the balance on the side with the smaller total in order make both totals equal.
4. Enter the totals on parallel line
5. Enter the balance again on the line below the totals in the opposite side.
Step 2: $840 – $400 = $440 (Balance)
Step 1: Step 1: Jan 5SalesJan 24Returns inwards30050Total =840 Total =400 Jan 28SalesJan 29Bank 540350
Step 5: Step 4: Step 3:
Finally enter balance again in the Enter the both totals Enter the balance ($440)
opposite side. ( balance) on a parallel line here so that totals will be
equal. ( balance )
? Bal c/d: “Balance carried down” is the closing balance of a period. It usually takes place at the last date
of the month or the year.
? Bal b/d: “Balance brought down” is the opening balance of the next period. It usually takes place at the
first date of the next month or the next year.
? Mr. Wong is a debtor (an asset) and its account has a debit “balance brought down”
In the books of K. Poon show the following accounts, balance off all the accounts.
May 1CapitalMay 21Machinery9,000550
May 30T. MokMay 29T. Wing300860
Bank is an asset, its account has a _______________ balance.
May 5SalesMay 30K. Yip180170
Cash is an asset, its account has a _______________ balance.
May 6Returns outwardsMay 2Purchases40900
T. Wing is a creditor, its account has been fully settled. Therefore, there is __________ balance.
May 28Returns outwardsMay 3Purchases80250
May 30CashMay 18Purchases170190
K. Yip is a creditor, its account has a _______________ balance.
May 10SalesMay 23Returns inwards590140
T. Mok is a debtor, its account has a _____________ balance.
May 22SalesMay 25Returns inwards22010
C. Ho is a debtor, its account has a _____________ balance.
A. B. Ltd.
A.B. Ltd. is a sundry creditor, its account has a ___________ balance.
Capital account has a ___________ balance.
May 2T. Wing900
May 3K. Yip250
May 18K. Yip190
Purchases mean an increase in stock value (asset), its account has a _____________ balance.
May 5Cash 180
May 10T. Mok590
May 12Cash 210
May 22C. HO220
Sales mean a decrease in stock value (asset). Its account has a ____________ balance.
May 23T. Mok140
May 25C. HO10
Returns Inwards mean an increase in stock value by return. Its account has a ___________ balance.
May 6T. Wing 40
May 28K. Yip80
Returns Outwards mean a decrease in stock value by return. Its account has a ____________ balance.
May 21Bank 550
May 31A. B. Ltd.2,700
Machinery is an asset. Its account has a ____________ balance.
Jan 7SalesJan 24 Bank900900
Both sides are equal, therefore, there is no ________________.
To summarize the balances:
Types of accounts Rules of Double Entry Dr. or Cr. Balance?
Increase in value Decrease in value 1. Assets 2. Liability 3. Capital 4. Drawings 5. Expenses 6. Revenue 7. Sales 8. Purchases 9. Returns Inwards 10. Returns Outwards
IV. Trial Balance
A Trial Balance is a list of all the balances of the accounts in our books, shown in debit and credit columns.
At the end of the accounting period, all accounts should be balanced off or closed and extracted to prepare a
Trial Balance as at Date
SalesXReturns InwardsXReturns OutwardsXDiscounts ReceivedXDiscounts AllowedXRent XRent ReceivedXSalary XMotor VanXDebtorsXCreditorsXCash at BankXCapitalXStockX
According to the above example, prepare the trial balance.
Trial Balance as at 31 May 2003
VI. Use of a Trial Balance
1. Finding errors – as every debit must have a credit entry, the totals of the debit balances and the credit
balances on a trial balance must be equal; if not, there must be an error.
2. Facilitating the preparation of the final accounts:
? Trading, profit and loss account
? Balance sheet.