Acc Clerk Chapter 4b-Balancing Accounts

Balancing Accounts at End of Periods
Learning Outcomes:
In this lesson, you will learn:
● How to balance accounts.

● How to use pencil footings.
● How to close accounts that do not have balance.
● How to transfer an account balance to the income
statement and close the account.
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Preparing Ledger Accounts
Periodically it is necessary to balance many
ledger accounts. This process, together with
closing some accounts, is required in order
to:
❑ Make a clear statement about the current value shown in the
account (i.e. the balance) or, in the case of some accounts, that
there is no balance (i.e. the account is closed).
❑ Break up ledger accounts into more manageable sections.
❑ Provide information for the completion of financial statements such
as trial balances, income statement and statement of financial
position (balance sheets).
The Balancing Process
❑ At the end of an accounting or financial
period, it is necessary to find the balance
on each ledger account in order that a trial
balance can be extracted as part of the
accounting cycle.
❑ The process is referred to as ‘balancing off
accounts’ or balancing the ledger.
❑ Assets, liabilities and the capital accounts
are usually balanced at the end of a
financial period (through accounts can be
balanced more often if desired).
❑ The balancing process follows the basic
rule of double entry – that there must be a
matching debit and credit entry and
involves three steps:
Here are the steps in the balancing process:
❑ Step 1: calculating the balance at the end
of the period and recording this own on
whichever side of the account has the
lowest total (this is referred to as the
balance carried down, or balance c/d.
Here are the steps in the balancing process:
❑ Step 2: recording totals on the next
available blank line.
❑ Step 3: making a second of the balance
below the totals on the opposite side to
complete the double entry (this is referred
to as the balance brought down, or
balance b/d).
Balancing an asset account and liability
account
Here are two ledger accounts as they appear just before the
end of a financial period.
Dr Account receivable: Louise Fray Cr

Date Details Folio $ Date Details Folio $
2019 2019
Aug 10 Sales SB3 3 100 Aug 12 Bank CB8 1 800
12 Discount allowed CB8 200
account
Here are two ledger accounts as they appear just before the
end of a financial period.
Dr Bank Loan Cr
2019 2019
Aug 30 Bank CB8 500 Aug 1 Bank CB8 8 000
Balancing an Asset and a
Liability Account
❑ The balance on the asset (account receivable) account
is $1 100 (i.e. the total of the credit side $3 100 less the
total of the credit side $2 000).
❑ The balance on the liability (bank loan) account is $7
500 (i.e. $8 000 less $500).
❑ Here are the accounts balanced following the three
steps outlined previously. To help you identify each
step they are clearly identified in the accounts.
account
Dr Account receivable: Louise Fray Cr
2019 2019
Aug 10 Sales SB3 3 100 Aug 12 Bank CB8 1 800
12 Discount allowed CB8 200
31 Balance c/d Step 1 1 100
Step 2 3 100 Step 2 3 100
Sept 1 Balance b/d Step 3 1 100
NOTE: balance on the asset (account receivable) account is $1 100 (i.e. the total of
the debit side $3 100 less the total of the credit side $2 000).
account
Dr Bank Loan Cr
2019 2019
Aug 30 Bank CB8 500 Aug 1 Bank CB8 8 000
31 Balance c/d Step 1 7 500
Step 2 8 000 Step 2 8 000
Sept 1 Balance b/d Step 3 7 500
NOTE: Here, the balance on the liability (bank loan) account is $7 500 (i.e.
$8 000 less $500)
Using Pencil Footings
❑ Some individuals find it helpful to make a pencil

note the totals of each side of an account in order
to work out the balance.
❑ These pencil footing are entered before carrying
out the formal balancing process, and can be
erased when the balancing process is complete.
❑ Remember that discount columns are totalled
rather than balanced and folio references are
placed beside or below these totals.
Closing Accounts
Closing accounts that do not have a balance
❑ Some asset or liability accounts will not show a
balance at the end of the year.
❑ This is because the total of entries on each side
of the account is the same.
❑ A typical example is the account of an account
receivable to whom goods have been sold on
credit, but who has paid off the amount due.
Closing Accounts
Closing accounts that do not have a balance
To close an account without balance:
❑ Either: record totals on the available blank line-
this process is used for accounts where there are
a number of entries on either or both sides of the
account.
❑ Or: record double total lines this process is
used where there is just one entry on each side
of the account.
Closing Accounts That Do Not Have
Balance
Here is the account of a credit supplier in the purchases ledger of a business. The
amount due to this supplier has been paid, and there is no balance on the account,
so a total has been added.
PURCHASES LEDGER
Dr Accounts payable: ABC Supplies (Account No.3) Cr

2019 $ 2019 $
Oct 22 Bank CB9 3 420 Oct 1 Balance b/d 3 600
22 Discount received CB9 180
3 600 3 600
Balance
Here is an account receivable in the sales ledger of a business. The amount due
has been paid by this credit customers. As there is just one entry on either side of
the account, only double lines have been added – there is no need to record a total.
SALES LEDGER
Dr Accounts receivable: Kris Williams (Account No.11) Cr

2019 $ 2019 $
Oct 1 Balance b/d 730 Oct 18 Bank CB8 730
Closing Accounts That Do Not
Have Balance
DID YOU KNOW?: an alternative format

for keeping accounts records the
balance on the account after each entry
is made. This format is mainly used
when computerized accounting software
is used. This running-balance format
follows the same rule of double-entry
Closing Accounts by Transferring
the Account Balance
Some accounts are closed at the end of a financial year
because the total of the entries is transferred elsewhere.
The accounts that are closed are those relating to:
❑ Expense
❑ Income (such as discount received)
❑ Purchases
❑ Sales
the Account Balance
These accounts are closed at the end of a financial year
because the total amount shown has to be transferred to
the income statement. The procedure is as follows:
❑ Step 1: Calculate the balance of the account and record
this on whichever side- debit or credit – Is the smaller
side (it is likely there will be no existing entries on the
side of the account at this point). The narrative to use is
‘income statement’.
❑ Step 2: Record totals on the next available blank line (if
there only one entry on each side of the account just
rule a double line).
the Account Balance
These accounts are closed at the end of a financial year
because the total amount shown has to be transferred to
the income statement. The procedure is as follows:
❑ Step 3: Do NOT bring down the balance on the
account. The other entry for the debit or credit in Step 1
will be in the income statement.
Balance
GENERAL LEDGER
Dr Administrative expenses: (Account No.1) Cr
2019 $ 2019 $
Dec 31 Total entries for year CB 5 600 Dec 31 Income statement J 5 600
Dr Discount received: (Account No.3) Cr
2019 $ 2019 $
Dec 31 Income statement J 850 Dec 31 Total entries for year CB 850
Balance
GENERAL LEDGER
Dr Purchases (Account No. 4) Cr
2019 $ 2019 $
Dec 31 Purchases book PB 18 970 Dec 31 Income statement J 22 720
31 Cash Purchases CB 3 750
22 720 22 720
Dr Sales: (Account No.9) Cr

2019 $ 2019 $
Dec 31 Income statement J 58 000 Dec 31 Sales book SB 38 620
31 Cash sales CB 19 380
58 000 58 000
Additional Notes
When closing an account:
❑ The closing entries are recorded in the
general ledger accounts
❑ A folio reference is placed beside each
entries to correspond with there respective
double-entry record
Summary Points
By now you should be able to:
❑ Explain the benefits which results from balancing accounts?
❑ Describe the three stages in the balancing process.
❑ Explain in difference between the terms ‘balance b/d’ and
‘balance c/d’.
❑ Describe the procedure for closing an account
❑ Determine in which book of original entry the transfer of an
account balance to the income statement should be
recorded

Acc Clerk Chapter 4b-Balancing Accounts

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Acc Clerk Chapter 4b-Balancing Accounts

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Balancing Accounts at End of Periods

In this lesson, you will learn:

● How to balance accounts.

Dr Account receivable: Louise Fray Cr

❑ Some individuals find it helpful to make a pencil

Dr Accounts payable: ABC Supplies (Account No.3) Cr

Dr Accounts receivable: Kris Williams (Account No.11) Cr

Oct 1 Balance b/d 730 Oct 18 Bank CB8 730

DID YOU KNOW?: an alternative format

Dr Discount received: (Account No.3) Cr

Dr Sales: (Account No.9) Cr

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