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10 Accounting: Balancing off Accounts and Trial Balance

By Chris Walker,2014-05-05 13:42
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10 Accounting: Balancing off Accounts and Trial Balance

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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

    steps:

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)

    Mr. Wong

    2003$2003$

    Step 1: Step 1: Jan 5SalesJan 24Returns inwards30050Total =840 Total =400 Jan 28SalesJan 29Bank 540350

    Feb 1

     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 )

    Notes:

    ? 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”

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    III. Example:

    In the books of K. Poon show the following accounts, balance off all the accounts.

    (a)

    Bank

    2003$2003$

    May 1CapitalMay 21Machinery9,000550

    May 30T. MokMay 29T. Wing300860

Bank is an asset, its account has a _______________ balance.

(b)

    Cash

    2003$2003$

    May 5SalesMay 30K. Yip180170

    May 12Sales210

Cash is an asset, its account has a _______________ balance.

(c)

    T. Wing

    2003$2003$

    May 6Returns outwardsMay 2Purchases40900

    May 29Bank860

T. Wing is a creditor, its account has been fully settled. Therefore, there is __________ balance.

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    (d)

    K. Yip

    2003$2003$

    May 28Returns outwardsMay 3Purchases80250

    May 30CashMay 18Purchases170190

K. Yip is a creditor, its account has a _______________ balance.

(e)

    T. Mok

    2003$2003$

    May 10SalesMay 23Returns inwards590140

    May 29Bank300

T. Mok is a debtor, its account has a _____________ balance.

(f)

    C. Ho

    2003$2003$

    May 22SalesMay 25Returns inwards22010

C. Ho is a debtor, its account has a _____________ balance.

(g)

    A. B. Ltd.

    $2003$

    May 31Machinery2,700

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    A.B. Ltd. is a sundry creditor, its account has a ___________ balance.

    (h)

    Capital

    $2003$

    May 1Bank9,000

Capital account has a ___________ balance.

(i)

    Purchases

    2003$$

    May 2T. Wing900

    May 3K. Yip250

    May 18K. Yip190

Purchases mean an increase in stock value (asset), its account has a _____________ balance.

(j)

    Sales

    $2003$

    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.

(k)

    Returns Inwards

    2003$$

    May 23T. Mok140

    May 25C. HO10

Returns Inwards mean an increase in stock value by return. Its account has a ___________ balance.

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    (l)

    Returns Outwards

    $2003$

    May 6T. Wing 40

    May 28K. Yip80

Returns Outwards mean a decrease in stock value by return. Its account has a ____________ balance.

(m)

    Machinery

    2003$$

    May 21Bank 550

    May 31A. B. Ltd.2,700

Machinery is an asset. Its account has a ____________ balance.

(n)

    R.C. Lee

    2003$2003$

    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

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    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.

    Format:

    Trial Balance as at Date

    DrCr

    $$PurchasesX

    SalesXReturns InwardsXReturns OutwardsXDiscounts ReceivedXDiscounts AllowedXRent XRent ReceivedXSalary XMotor VanXDebtorsXCreditorsXCash at BankXCapitalXStockX

    ZZ

V. Example

    According to the above example, prepare the trial balance.

    Trial Balance as at 31 May 2003

    DrCr

    $$

    Bank

    Cash

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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.

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