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Accounting: Balancing and Different Types of an Account: Assets, Liabilities, Capital, Expenses and Revenue
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
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
Date | Particulars | L. F | Amount (₹) | |
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 |