Balancing of Accounts08/01/2022 0 By indiafreenotes
In bookkeeping, “Balance” is the difference between the sum of debit entries and the sum of credit entries entered into an account during a financial period. When total debits exceed total credits, the account indicates a debit balance. The opposite is true when the total credit exceeds total debits, the account indicates a credit balance. If the debit/credit totals are equal, the balances are considered zeroed out. In an accounting period, “Balance” reflects the net value of assets and liabilities to better understand balance in the accounting equation.
Balancing the books refers to the primary balance sheet equation of:
Assets = Liabilities + Owner’s equity (capital)
The first “balancing” of books, or the balance sheet financial statement in accounting is to check iterations (trial balance) to be sure the equation above applies, and where assets and liabilities are unequal, to equalize them by debiting or crediting owner’s equity (i.e. if assets exceed liabilities, equity is increased, if liabilities exceed assets, equity is decreased, both in the amount needed to balance the equation).
In addition to the balance sheet, the other primary financial statement (the P&L or Profit and Loss Statement) also is balanced against the balance sheet, generally by the use of a “plug” such as imputed interest.
Balancing of an account is to total both debit and credit sides of an account and putting the difference on that side which is shorter. All ledger accounts are usually closed and balanced at the end of an accounting period. The main reason for balancing is to ascertain the precise position of a business enterprise at a particular period of time. It is worth mentioning here that only permanent accounts are balanced and carried forward to the balance sheet.
The following steps are taken for balancing the accounts:
Both the sides of an account are totalled.
The difference of both the sides is ascertained.
If total of debit side exceeds the total of credit side, it is known as debit balance and the difference is inserted on the credit side by writing the words ‘By Balance c/d or By Balance c/o or By Balance c/f’ in the particulars column.
If total of credit side exceeds the total of debit side, it is known as credit balance and the difference is inserted on the debit side by writing the words ‘To Balance c/d or To Balance c/o or To Balance c/f’ in the particular’s column.
Record the date on which the account is closed and balanced.
Write total amount on both sides of the account horizontally.
Draw single lines just above and double lines or single thick line just below the total amounts on each side of account.
In case of debit balance, bring down the balance by writing the words ‘To Balance b/d or To Balance b/o or To Balance b/f’ in the particulars column and record the date at the beginning of the next accounting period.
In case of credit balance, bring down the balance by writing the words ‘By Balance b/d or By Balance b/o or By Balance b/f’ in the particulars column and record the date at the beginning of the next accounting period.
- Click to share on Twitter (Opens in new window)
- Click to share on Facebook (Opens in new window)
- Click to share on WhatsApp (Opens in new window)
- Click to share on Telegram (Opens in new window)
- Click to email a link to a friend (Opens in new window)
- Click to share on Reddit (Opens in new window)
- Click to share on Pocket (Opens in new window)
- Click to share on Pinterest (Opens in new window)