Accounting: Balancing and Different Types of an Account: Assets, Liabilities, Capital, Expenses and Revenue

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Balancing of an Account

Debit balance and credit balance of ledger account may not be equal all the time. Balancing both debit and credit side of an account is called Balancing of an account.

  • If the credit side is bigger than the debit side then we balance the account by placing remaining balance on the debit side by mentioning ‘Balance c/d’ (Balance carried down) and we call it as ‘Credit balance’.

  • If the debit side is bigger than the credit side then we balance the account by placing remaining balance on the credit side by mentioning ‘Balance c/d’ and we call it as ‘Debit Balance’.

  • Finally at the end of the year all the ledger accounts are closed by taking out the balance of each account.

Note: At the end of the period, the balance should be carried forward or ‘Balance b/d’ (Balance bring down) to the next accounting period.

  • If the difference was put on credit side as ‘Balance c/d’ now it should be written on the debit side of the account as ‘Balance b/d’ and vice-a-versa. Thus debit balance will automatically be brought down to the debit side and a credit balance to the credit side.

Balancing of Different Types of Accounts

  • Assets: All asset accounts are balanced. These accounts always have a debit balance.

  • Liabilities: All Liability accounts are balanced. All these accounts have a credit balance.

  • Capital: This account is always balanced and usually has a credit balance.

  • Expense and Revenue: These Accounts are not balanced but are simply totaled up. At the time of preparing the Trial Balance, the totals of these are taken to the Trial Balance.

Note: The Balance of Assets, Liabilities and Capital Accounts will be shown in Balance Sheet whereas total of Expense/Loss and Revenue/Income will be taken to the Trading and Profit and Loss Account.

Example:

Journalise the following transactions and post them in the ledger of Shan India Ltd.

2006

Table 1 Supporting: Balancing of different types of Accounts

Tablutation of: January 1 , Commenced business with cash , 50000

January 1

Commenced business with cash

50000

January 3

Paid into bank

25000

January 5

Purchased furniture for cash

5000

January 8

Purchased goods and paid by cheque

15000

January 8

Paid for carriage

B 500

January 14

Purchased Goods from K. Murthy

35000

January 18

Cash Sales

32000

January 20

Sold Goods to Ashok on credit

28000

January 25

Paid cash to K. Murthy in full settlement

34200

January 28

Cash received from Ashok

20000

January 31

Paid Rent for the month

2000

January 31

Withdrew from bank for private use

2500

Solution:

Journal of Shan India Ltd. For the month of January, 2006

Table 2 Supporting: Balancing of different types of Accounts

Tablutation of: Date, Particulars, L.F, Amount (Rs.)

Date

Particulars

L.F

Amount (Rs.)

Dr.

Cr.

2006

Jan 1

Cash A/c Dr.

To Capital A/c

(Started Business with cash)

50000

50000

Jan 3

Bank A/c Dr.

To Cash A/c

(cash paid to the bank)

25,000

25,000

Jan 5

Furniture A/c Dr.

To Cash A/c

(Purchase of furniture for cash)

5,000

5,000

Jan 8

Purchase A/c Dr.

To Bank A/c

(Purchased goods and paid in cheque)

15,000

15,000

Jan 8

Carriage A/c Dr.

To Cash A/c

(Cash paid for carriage charges)

5,00

5,00

Jan 14

Purchase A/c Dr.

To K.Murthy A/c

(goods purchased on credit from Murthy)

35,000

35,000

Jan 18

Cash A/c Dr.

To Sales A/c

(Goods sold for cash)

32,000

32,000

Jan 20

Ashok A/c Dr.

To Sales A/c

(Goods sold to Ashok on credit)

28,000

28,000

Jan 25

K.Murthy A/c Dr.

To Cash A/c

To Discount A/c

(Discount allowed to K.Murthy)

35,000

34,200

800

Jan 28

Cash A/c Dr.

To Ashok A/c

(Cash received from Ashok)

20,000

20,000

Jan 31

Rent A/c Dr.

To Cash A/c

(Rent Paid in Cash)

2,000

2,000

Jan 31

Drawings A/c Dr.

To Bank A/c

(Cash withdrawn by proprietor)

2,500

2,500

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