Balancing of ledger accounts

Balancing of ledger accounts

After posting the transactions, the business person is interested to know the position of various accounts. For this purpose, the accounts are balanced at the end of the accounting period or after a certain period to ascertain the net balance in each account. Balancing means that the debit side and credit side amounts are totalled and the difference between the total of the two sides is placed in the amount column as ‘Balance c/d’ on the side having lesser total, so that the total of both debit and credit columns are equal.

When the total of the debit side is more than the total of credit side the difference is debit balance and is placed on the credit side as ‘By Balance c/d’. If the credit side total is more than the total of debit side, the difference is credit balance and is placed on the debit side as ‘To Balance c/d’.

1. Procedure for balancing an account

Following is the procedure for balancing an account:

i.            The debit and credit columns of an account are to be totalled separately.

ii.            The difference between the two totals is to be ascertained.

iii.            The difference is to be placed in the amount column of the side having lesser total. ‘Balance c/d’ is to be entered in the particulars column against the difference and in the date column the last day of the accounting period is entered.

iv.            Now both the debit and credit columns are to be totalled and the totals will be equal. The totals of both sides are to be recorded in the same line horizontally. The total is to be distinguished from other figures by drawing lines above and below the amount.

v.            The difference has to be brought down to the opposite side below the total. ‘Balance b/d’ is to be entered in the particulars column against the difference brought down and in the date column, the first day of the next accounting period is entered.

vi.            If the total on the debit side of an account is higher, the balancing figure is debit balance and if the credit side of an account has higher total, the balancing figure is credit balance. If the two sides are equal, that account will show nil balance.

The rules for determining the balance is as follows:

It may be noted that totalling of a ledger account is known as casting. At the time of balancing an account, debit balance is the balancing figure on the credit side and credit balance is the balancing figure on the debit side. This balance is known as closing balance. The closing balance of an accounting period is the opening balance of the next accounting period.

Tutorial note

i.            Cash account cannot have a credit balance

ii.            Balances in real accounts and personal accounts are carried forward to the next accounting year.

iii.            Balances in the nominal accounts are not carried forward to next accounting year. They are closed by transferring to trading and profit and loss account.

iv.            Instead of the abbreviations c/d and b/d the abbreviations c/o and b/o (carried over and brought over) may be recorded if the balance is taken to the next successive page. If the balance is taken to a different non-successive page the abbreviation c/f and b/f (carried forward and brought forward) may be used.

Illustration 5

Thmizhanban started book selling business on 1st January, 2018. Following are the transac-tions took place in his business for the month of January, 2018. Pass journal entries and pre-pare ledger accounts.

2018

Jan.  1           Started business with cash Rs. 3,00,000

Jan.  2 : Opened bank account by depositing Rs. 2,00,000

Jan.  5 :  Goods bought from Tamilnadu Textbook Corporation for cash Rs. 10,000

Jan.  15  : Sold goods to MM Traders for cash Rs. 5,000

Jan.   22  : Purchased goods from X and Co. for Rs. 15,000 and the payment is made through net banking.

Jan.  25 : Sold goods to Y and Co. for Rs. 30,000 and the payment is received through NEFT

Solution

In the books of Thamizhanban

Journal entries

Illustration 6

Bharathi is a sole trader dealing in oil products for the past five years. The books of accounts showed the following balances on 1st April, 2018: Cash in hand Rs. 25,000; Cash at bank 3,00,000. The following transactions took place for the month of April 2018.

April 1 : Goods bought by giving cheque Rs. 30,000

April 5 : Goods sold to Naveen and payment received through NEFT Rs. 40,000

April 6 : Goods sold to Xavier for cash Rs. 20,000

April 9 : Goods sold on credit to Abdul for Rs. 25,000

April 18 : Cash received from Abdul Rs. 10,000

Pass Journal entries for the above transactions and prepare ledger accounts.

Solution

In the books of Bharathi

Journal entries

2. Direct ledger posting

Illustration 7

Prepare cash account from the following transactions for the month of January 2018.

Jan 1                Commenced business with cash Rs. 62,000

            Goods purchased for cash Rs. 12,000

            Goods sold for cash Rs. 10,000

            Wages paid Rs. 4,000

Furniture purchased for cash Rs. 6,000

Solution

The following are the transactions of Kumaran, dealing in stationery items. Prepare ledger accounts.

2017

June 5 : Started business with cash Rs. 2,00,000

June 8 : Opened bank account by depositing Rs. 80,000

June 12 : Bought goods on credit from Sri Ram for Rs. 30,000

June 15 : Sold goods on credit to Selva for Rs. 10,000

June 22 : Goods sold for cash Rs. 15,000

June 25 : Paid Sri Ram Rs. 30,000 through NEFT

June 28 : Received a cheque from Selva and deposited the same in bank Rs. 10,000

After posting the journal entries to ledger accounts and extracting the balance of ledger accounts, the trial balance is prepared. Trial balance is a statement which shows debit and credit balances of all accounts in the ledger. It helps to test the arithmetical accuracy of entries made in the journal and ledger.