Balancing double entry accounts

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1 Balancing Accounts and the Trial Balance Chapter 4 1 Balancing double entry accounts 2 Step 1: total both sides Bank a/c 1, May debit side = Credit side = 3 Page 1 of 6

2 Step 2: get the balancing figure by finding the difference between the two totals Debit side less credit side =. This is the balancing figure The balance goes on the lower side, in this case the credit side 4 Step 3: enter the balance on the lower side Bank a/c 1, May 5 Step 4: total both sides Bank a/c 1, May 6 Page 2 of 6

3 Step 5: bring the balance down below the total on opposite side Bank a/c 1, May 1-June Balance b/d 7 The balanced account Bank a/c 1, May Balance b/d 8 Page 3 of 6

4 9 For each debit entry there is a credit entry For each credit entry there is a debit entry 10 If all the items are recorded in all the accounts the total of the debit entries should equal the total of the credit entries. Total debit balances = Total credit balances Debit Credit A trial balance is a list of balances only, arranged according to whether they are debit balances or credit balances. Sales Sales returns Purchases Purchases returns Rent Rates Advertising Light and Heat Insurance Wages and salaries Motor vehicles Premises Furniture and equipment Debtors A. Dunne J. O'Donoghue P. O'Meara M. McDonald B. Gibson Bank Overdraft Creditors B. Winne L. Lamb C. Gardge Loans Capital 10,000 7,000 2,000 4,000 10, ,000 40,000 2,500 1,500 4, , , , , , Page 4 of 6

5 Balance the following accounts Capital Account Rent Account Bank a/c Bank a/c Bank Account Creditors Account (Ace Interiors) Capital a/c Rent a/c 30 Jan Bank 25Jan Shop Fittings a/c 12, Jan Equipment a/c 4, Jan Ace motors a/c Creditors Account (ABC Limited) Equipment Account 29 Jan Equipment a/c 26 Jan 29 Jan Bank a/c 4,500 Ace Interiors a/c Shop Fittings Account 12, Trial Balance at 31st January Capital Bank Equipment Shop Fittings Accounts Rent Account Creditors - Ace Interiors Creditors - ABC Limited Debit 37,500 8,000 12,000 60,500 Credit 7,000 60, Page 5 of 6

6 and Errors There are two types of errors: Errors which result in a trial balance that doesn t balance Errors which don t affect the trial balance agreement 14 Errors which result in a trial balance that doesn t balance Addition errors Using one figure for the debit and a different figure for the credit entry (debit 360 and credit 36) Entering one side of the transaction only (only entering debit of 360 omitting the credit entry) 15 Errors which don t affect the trial balance agreement Errors of omission (Both debit and credit entries ignored) Errors of commission (Correct amount in wrong personal account) Errors of principle (Correct amount in wrong class of account) Compensating errors (Two compensating errors canceling each other) Errors of original entry (Incorrect amount posted to correct side of both accounts) Complete reversal of entries (Correct amount to correct accounts but both entries on incorrect side) 16 Page 6 of 6

Fundamentals of Accounting Resources

Fundamentals of Accounting Resources Contents Figure 1 - The Profit and Loss statement example... 2 Figure 2 - Balance sheet example... 3 Figure 3 - Example of a Balance Sheet... 4 Figure 4 - Example of a Profit & Loss Sheet... 5 Figure 5-10