Balancing Off Account and Trial Balance L3

Introduction to Accounting Unit 3

:

Balancing off account and  Trial Balance Balance

Objectives  After you have studied this chapter, you should:

able to balance off personal accounts for  debtors and creditors  Be able to distinguish between a debit balance and a credit balance why trial t rial balance totals should  Understand why equal one another   Be able to draw up a trial balance from a given set of accounts  Appreciate that some kinds of errors can be made but the trial balance totals will still equal one another  

Be

Introductio In troduction n to the Ledger  are classified in a book called a "ledger".  A ledger has different accounts. Recording into the accounts requires the observation of the double entry rule.

y

y

y

Transactions

Types

of accounts

 Accounts

Personal accounts

 Accounts receivable

 Accounts payable

Impersonal accounts

Real accounts

Nominal accounts:

Types of  of a accou ccoun nts y

y

y

y

Debtors

and creditors are called personal accounts Others are called impersonal accounts, which which can be be real or  nominal  Assets like car, car, buildings, buildings, cash, etc are called real accounts Expenses, income and capital accounts are called nominal accounts

alanci cin ng Balan y

y

y

y

y

off A off  Accou ccoun nts

A ledger  account must always be closed, or  balanced. While balancing an account, both sides of  the accounts are added. The larger  amount will be written on both sides. The balancing figure is then decided so that both totals will be equal. This balance is what is called as balance carried down. ( Bal c/d) This balance must be carried across to the beginning of the of  the next period and will then be called as "Bal b/d ".

K Tandy

2008 2008   Aug 1 Sales $144 Aug 22Bank $144 19 Sales $ 300 28 Bank $ 300 $444 $444

Where

debtors still owe for goods D Knight

2008 August 2008 August 1 Sales $158 28Bank $158 15 Sa Sales $206 31 B c/d$ 324 30 Sales Sales $118 $118 482 482 Sept 1 b b/d 324 (to start off entries for following month)

Introductio In troduction n to a Tri rial al Balan alance ce y

y

y

y

y

 A Trial balance is prepared to ensure that double entry rules are observed. It contains all the balances of all the t he ledger  accounts on a certain date. If the balance brought down is a debit balance, then the item is placed in the debit column of the trial Balance. If the balance brought down is a credit balance, then the item is placed in the credit column of  the trial Balance. A

Trial balance is not an  Account 

Trial Balance

Purchases

as at 31 May 2009

Dr

Cr 

$ 994

$

Sales

490 15

Returns outwards Return inwards

16

 A Lyon & Son M Spenser  Cash

624 29 90 1,129 1,129

1,129 1,129

Errors

y

y

y

y

y

y

not reve reveal aled ed by the Tr ail Balan alance ce

Errors of Omission Errors of Commission Errors of Principle Compensating errors Reversal of entry Error of Original Entry

2. Errors

y

of O of  Omission ission

 A transaction is completely not recorded ( no debit, no credit credit entry)

3. Errors y

y

of P of  Prin rinciple

 An asset is recorded into an expens account E.g. Cost of a new motor car put int a motor car expense account

4. Com Compensatin ting errors y

y

When

one error balances the other. E.g. Debtors are over added by $10, creditors also over added by $10

5. eversal Reversal y

y

Where

of e of  entr y

the debits and credits are mixed up E.g. An account to be debited is credited, while an account to be credited is debited

6. Errors y

y

The

of Co of  Comm mmissio ission n

amount is entered on the right side, but in the wrong account e.g. In Mr. B's account, instead of Mr. D's account