Topic 4

BALANCING OFF ACCOUNTS

AND TRIAL BALANCE
ktkt.ueb.edu.v
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 Study Objectives

1. Close-off accounts when appropriate

2. Balance-off accounts at the end of a period and bring
down the opening balance to the next period
3. Distinguish between a debit balance and credit balance
4. Prepare a trial balance from a set of accounts

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 Overview of Accounting Process

Analyse Journalising Posting to Prepare Trial Make Prepare

transactions Ledgers Balance adjustments Financial
and accrual Statements
estimates

Books
of Adjusti Financial
original Trial ng & Statements
Source Ledgers
Documents
entry Balance Accrual
(Journa Entries
ls)

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 Reading Materials
Frank Wood, 2019. Business Accounting, Pearson.
1. Chapter 5
2. Chapter 6

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 Accounts for debtors
Debtors owe us nothing

Dr K.Tandy a/c Cr
Aug1 Sales 144 Aug22 Bank 144
19 Sales 300 28 Bank 300
444 444

In this account, the customer (K.Tandy) is no longer a

debtor (she does not owe us any money now). We
can, therefore, close off her account.

Slide
1-5 SO 1 Close-off accounts when appropriate
 Accounts for debtors
Debtor still owes us
D. Knight
Aug 1Sales 158 Aug 28Bank 158
15Sales 206
30Sales 118
482 158

The totals of two sides are not equal. We need to balance-

off the account.

SO 2 Balance-off accounts at the end of a period and bring down the

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opening balance to the next period
 Accounts for debtors
Question

Why do the accountants need to balance off the account for

each debtor?
How often would the accountants do this?

SO 2 Balance-off accounts at the end of a period and bring down the

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opening balance to the next period
 Accounts for debtors
5 stages of balancing off accounts
Step 1: Add up both sides to Step 2: Find the difference
find out their totals. Do not between two balances.
write anything in the account
at this stage.

D. Knight
Aug 1Sales 158 Aug 28Bank 158
15Sales 206
30Sales 118

SO 2 Balance-off accounts at the end of a period and bring down the

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opening balance to the next period
 Accounts for debtors
5 stages of balancing off accounts
Step 1: Add up both sides to Step 2: Find the difference
find out their totals. Do not between two balances.
write anything in the account
at this stage.
D. Knight
Aug 1Sales 158 Aug 28Bank 158
15Sales 206 31Balance carried down 324
30Sales 118

Step 3: Add the difference in

the smaller side so that totals
will be equal

SO 2 Balance-off accounts at the end of a period and bring down the

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opening balance to the next period
 Accounts for debtors
5 stages of balancing off accounts
Step 1: Add up both sides to Step 2: Find the difference
find out their totals. Do not between two balances.
write anything in the account
at this stage.
D. Knight
Aug 1Sales 158 Aug 28Bank 158
15Sales 206 31Balance carried down 324
30Sales 118
482 482

Step 4: Enter totals Step 3: Add the

(level with each difference in the smaller
other) side so that totals will
be equal

SO 2 Balance-off accounts at the end of a period and bring down the

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opening balance to the next period
 Accounts for debtors
5 stages of balancing off accounts
Step 1: Add up both sides to Step 2: Find the difference
find out their totals. Do not between two balances.
write anything in the account
at this stage.
D. Knight
Aug 1Sales 158 Aug 28Bank 158
15Sales 206 31Balance carried down 324
30Sales 118
482 482
Sep 1 Balance brought down 324
Step 5: Enter Step 4: Enter totals Step 3: Add the
balance brought (level with each difference in the smaller
down to start for the other) side so that totals will
next month be equal
Slide SO 2 Balance-off accounts at the end of a period and bring down the
1-11 opening balance to the next period
 Accounts for debtors
Balancing off accounts
• Use the abbreviations 'c/d' and 'b/d’
• The date given to balance c/d is the last day of the period
which is finishing, and balance b/d is given the opening
date of the next period
• Total debit > Total credit => The balance is said to be a
'debit balance'
D. Knight
Aug 1Sales 158 Aug 28Bank 158
15Sales 206 31Balance c/d 324
30Sales 118
482 482
Sep 1 Balance b/d 324

Slide SO 2 Balance-off accounts at the end of a period and bring down the
1-12 opening balance to the next period
 Accounts for creditors
• The process of closing off or balancing off is the same for
creditors’ accounts
• Total debit < Total credit => The balance is said to be a
‘credit balance'
E. Williams
Aug 21Bank 100 Aug 2Purchases 248
31Balance c/d 264 18Purchases 116
364 364
Sep 1 Balance c/d 264

Slide SO 2 Balance-off accounts at the end of a period and bring down the
1-13 opening balance to the next period
 Practice

Enter the following in the personal accounts (i.e., the creditor and
debtor accounts) only in Sales Ledger and Purchases Ledger.
Close-off or Balance-off each personal account at the end of the
month.
Sep 1 Sales on time to J. Bee £1,040; T. Day £1,260; J. Soul £480.
6 Purchases on time D. Blue £780; F. Rise £1,020; P. Lee £560.
8 Returns inwards from J. Soul £25; T. Day £190.
14 We returned goods to F. Rise £12; P. Lee £84.
19 J. Bee paid us by cheque £900.
27 We paid F. Rise by cheque £766.

Slide SO 2 Balance-off accounts at the end of a period and bring down the
1-14 opening balance to the next period
 Balancing off accounts in General Ledger
The accountants also need to balance off accounts in
General Ledger at the end of the accounting period

WATCH OUT!!!
For asset, liability or capital accounts, the balance on the account
is balanced off (carried down and brought down to give the
opening balance for the next accounting period).
For income or expense accounts, the balance is transferred to a
profit and loss ledger account, leaving a nil balance in the income
or expense account (This is covered in Topic 5: Financial
Statements). For those accounts, the accounts just calculate the
totals to prepare trial balance.

Slide SO 2 Balance-off accounts at the end of a period and bring down the
1-15 opening balance to the next period
 Balancing off accounts in General Ledger
PRACTICE:
Balance off ledger accounts in Exercise 6.2

Slide SO 2 Balance-off accounts at the end of a period and bring down the
1-16 opening balance to the next period
 REVIEW: Five-step process
1. Analyze the transaction
Analyze the transaction to determine which
Five-step process for analyzing

accounts are affected and how (increased Step 1

or decreased).
and applying transactions

2. Apply the rules of double entry

Apply the rules of double-entry accounting
Step 2
using T accounts to show how the
transaction affects the accounting equation.
3. Record the entry
Show the transaction in journal form.
Step 3

4. Post the entry

Transfer dates and amounts from journal to
proper accounts in ledger Step 4

5. Prepare the trial balance

Confirms that accounts are still in balance
Step 5
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 Trial Balance

• For each debit entry, there is a credit entry and for each
credit entry, there is a debit entry.
• Total debit entries = Total credit entries
• To check that there is a matching credit entry for every
debit entry, we prepare a trial balance.
• Trial balance is the starting point to preparing the
financial statements.

Slide SO 4 Prepare a trial balance from a set of accounts

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 Trial Balance
The trial balance is a list of account balances arranged according to
whether they are debit balances or credit balances.
A trial balance can be drawn up at any time. However, it is normal
practice to prepare one at the end of an accounting period.

Slide SO 4 Prepare a trial balance from a set of accounts

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 Trial Balance
Prepare Trial Balance as at 31 March 20XX for Exercise 6.2

Slide SO 4 Prepare a trial balance from a set of accounts

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 Trial Balance
Another way to prepare Trial Balance!!!

Slide SO 4 Prepare a trial balance from a set of accounts

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 Trial Balance

Slide SO 4 Prepare a trial balance from a set of accounts

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 PRACTICE
As at 31.3.20XX, Hawk Ltd has the following general ledger
account balances.
Account Balance ($)
Bank Loan 12,000
Cash at Bank 11,700
Capital 13,000
Rent 1,880
Accounts Payable 11,200
Purchases 12,400
Sales 24,300
Accounts Receivable 12,000
Equipment 22,020
Wage expense 500

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 PRACTICE
In April 20XX, Hawk Ltd made the following transactions:
• 05/04: Bought goods for $1,000, half for cash and half on
credit.
• 12/04: Made sales of $1,040, $800 of which were on credit.
• 25/04: Paid wages to shop assistants of $260 in cash.

Requirement: Prepare Trial Balance as at 30 Apr 20XX

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 PRACTICE - SOLUTION
As at 31.3.20X7, Hawk Ltd has the following nominal ledger
account balances.
Opening Movements Closing
Balance Balance
DR CR DR DR CR
Bank Loan 12,000
Cash at Bank 11,700
Capital 13,000
Rent 1,880
Accounts Payable 11,200
Purchases 12,400
Sales 24,300
Accounts Receivable 12,000
Equipment 22,020
Wage expense 500
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 PRACTICE - SOLUTION
Recording transactions in April 20XX:
Apr 5 Dr. Purchases 1,000
Cr. Bank 500
Cr. Accounts Payable 500
Apr 12 Dr. Bank 240
Dr. Accounts Receivable 800
Cr. Sales 1,040
Apr 25 Dr. Wage Expense 260
Cr. Bank 260

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 PRACTICE - SOLUTION
Hawk Ltd
Opening Balance Movements Closing Balance
DR CR DR CR DR CR
Bank Loan 12,000 12,000
Cash at Bank 11,700
240 760 11,180
Capital 13,000 13,000
Rent 1,880 1,880
Accounts
11,200
Payable 500 11,700
Purchases 12,400 1,000 13,400
Sales 24,300 1,040 25,340
Accounts
12,000
Receivable 800 12,800
Equipment 22,020 22,020
Wage expense 500
260 760
Total 60,500 60,500 2,300 2,300 62,040 62,040
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