# Ledger Account Balancing

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# The Basic Purpose of Accounting

The basic purpose of Accounting is derivation of information.

# • The targeted to be achieved through the accounting process » Making up the Ledger

The target to be achieved through the whole process of accounting is to collect all the information relating to an element at a single place. This is achieved by preparing the ledger.

Each Ledger Account provides information relating to an element. By information we mean the accounting information.

# Ledger Account » Balance, Balancing

The ledger account provides all the accounting information relating to an element at a single place. Apart from this there is some other information that can be derived from the ledger account.

# • Ledger Account : Balance

The ledger account collects all the debits and credits made in relating to an account head at a single place. From this informatoin another key information called the ledger account balance can be obtained.

Debit and credit are two actions of opposing nature.

A debit in an account and a credit in the same account result in the amounts getting set off against each other. What would be left in the account is the difference (balance) of the two amounts after set off. This difference is what we call the balance of the ledger account.

# • Ledger Balancing

The act of finding the balance in a ledger account is called Ledger Balancing.

Whatever may be the number of debits and credits in a ledger account, the balance is obtained by setting off the sum of all the debits against the sum of all the credits. The balance amount in a ledger account is the difference between these two sums.

In setting off, we always assume that the greater sum is being set off from the smaller one. Thus the ledger account balance is also interpreted as

• Debit side total − Credit side total (if debit side total is greater)
• Credit side total − Debit side total (if Credit side total is greater).

Mathematically, the balance is the absolute difference between the credit side total and the debit side total
⇒ Ledger Account Balance = [Debit side total − Credit side total]

# • Illustration

 Dr Cash a/c Cr
Date Particulars J/F Amount
(in Rs)
Date Particulars J/F Amount
(in Rs)
15/06/05
19/06/05
24/06/05
24/06/05
To Capital a/c
To Goods/Stock a/c
To Mr. Natekar a/c
To Commission

2,00,000
12,000
2,000

500
17/06/05
17/06/05
18/06/05
18/06/05
21/06/05
By Furniture a/c
By Rent Paid a/c
By Bank a/c
By Goods/Stock a/c
By Wages Paid a/c

20,000
5,000
1,50,000
10,000
5,000
sub-total   2,14,500   sub-total   1,90,000

The total of the debit side is 2,14,500 and that of credit side is 1,90,000.
⇒ The balance in this Ledger account is 24,500 (2,14,500 − 1,90,000).

## » Sub Totals !!

Conventionally, the totals of the postings on the debit side (sum of debit side item values) or on the credit side (sum of credit side item values) are not shown in a ledger account. To enable a student to understand the concept of balancing a ledger account, we have shown them and named them sub-totals.

Till you get accustomed to the concept of ledger account balancing, add up the items and show the total as sub-totals (at least with a pencil). It makes things easier for you.

# Is it a Debit balance or a Credit balance?

Since the balance is obtained by setting off the sum of debit side amounts and sum of credit side amounts, we can say that what remains is related to the greater sum.

The nature of the balance is related to the greater sum.

• If the total of the debit side is greater, the ledger account has a debit balance
• If the total of the credit side is greater the ledger has a credit balance.

# • Illustration

 Dr Cash a/c Cr
Date Particulars J/F Amount
(in Rs)
Date Particulars J/F Amount
(in Rs)
15/06/05
19/06/05
24/06/05
24/06/05
To Capital a/c
To Goods/Stock a/c
To Mr. Natekar a/c
To Commission

2,00,000
12,000
2,000

500
17/06/05
17/06/05
18/06/05
18/06/05
21/06/05
By Furniture a/c
By Rent Paid a/c
By Bank a/c
By Goods/Stock a/c
By Wages Paid a/c

20,000
5,000
1,50,000
10,000
5,000
sub-total   2,14,500   sub-total   1,90,000

The total of the debit side is 2,14,500 and that of credit side is 1,90,000.
⇒ The balance in this Ledger account is 24,500 (2,14,500 − 1,90,000).

The debit side total is greater than the credit side total
⇒ The balance in this Ledger account is a debit balance.

⇒ This ledger account has a debit balance of 24,500.

# When to balance? What idea does the balance give?

The ledger account is balanced periodically. In general, there are ledger accounts that are balanced daily, weekly, monthly, annually.

There is no cut right rule or principle to specify the period for which a particular ledger account should be balanced. For what period a ledger account is to be balanced is something that is dependent on the information that we wish to derive from the account and the frequency at which we wish to derive it.

The period for which balancing should be done can be better understood by looking at the information that the balance itself represents.

# • What idea does the ledger balance give?

Explanation for the information provided by the ledger account balance of some accounts.

## » Cash a/c

Cash a/c being a real account, is debited whenever cash comes into the organisation (receipts) and is credited whenever cash goes out of the organisation (payments).

Thus, the amount of balance in Cash a/c should give an idea of the amount of cash available with the organisation. [Since you cannot pay cash without having it, let us assume that receipts are always greater than payments.]

Cash balance is an information that may be needed frequently. So, we find it a general practice that businesses assesses the amount of cash on a daily basis at the end of the day at least.

Amount of cash balance can be known by balancing the Cash a/c. Thus we can say that Cash a/c is balanced daily (at the end of the day).

## » Wages Paid a/c

Wages paid a/c is a nominal account. It is debited whenever Wages are paid.

Assume that wages are being paid daily. Say, the organisation needs the information relating to the weekly expenditure on wages. What should it do?

Balance the Wages Paid a/c on a weekly basis. The balance at the end of the first week indicates the first weeks expenditure.

The balance at the end of the second week indicates the cumulative expenditure for the first two weeks. Deducting the balance at the end of the first week from this would give the expenditure for the second week.

## » Furniture a/c

Furniture a/c being a Real account, is debited whenever Furniture comes in (bought) and is credited whenever Furniture goes out (scrapped, sold, damaged etc).

Assume that Furniture is purchased occassionally. Organisations wish to know the value of their assets at least once a year, generally towards the end of the year. What should be done to obtain this information annually?

Balance the Furniture a/c at the end of the year.

## » Mr. Ibrahim a/c

Mr. Ibrahim a/c being a personal account, is debited whenever he receives some benefit (buys goods on credit) from the organisation and is credited whenever he gives some benefit (pays money, returns goods purchased etc) to the organisation.

Say the organisation needs the information relating to the balance due from Mr. Ibrahim (debtor) on a monthly basis. What should be done?

Balance Mr. Ibrahim's a/c at the end of every month. [The ledger balance gives the amount due and the nature of balance lets us know whether the amount is due to him or due from him.]

The information may also be obtained as and when needed by balancing the account at that point when the information is needed.

# • Balancing Frequency

## Frequency

Meaning = The number of occurrences within a given time period.

The frequency of balancing (i.e. how many times a ledger account is balanced in a time period [say a year]) is dependent on the information needs of the organisation.

# • Carried Forward

• Meaning = Transfer from one time period to the next.
• Synonym = Carried Down.
Consider Cash a/c and assume that it is being balanced on a daily basis. At the end of a day, the cashier would be left with a certain amount of cash (how much is what is indicated by the balance in the Cash a/c).

What would he do with that cash?. He would take it over to the next working day. This explains the use of the phrase Carried Forward or Down.

We say that the balance is carried forward to the next day or the balance is carried down to the next day.
(Or) more specifically,
We say that the balance is carried forward from the end of a day to the beginning of the next day.

# • Where do we use/show this (appear) in the Ledger Account

• The phrase "Balance c/d" or "Balance c/f" is written immediately after the sub-total.
• It is written on the side with the lesser total.
• It is prefixed by "To" or "By" depending on which side it is being written.
 Dr Cash a/c Cr
Date Particulars J/F Amount
(in Rs)
Date Particulars J/F Amount
(in Rs)
15/06/05
19/06/05
24/06/05
24/06/05
To Capital a/c
To Goods/Stock a/c
To Mr. Natekar a/c
To Commission

2,00,000
12,000
2,000

500
17/06/05
17/06/05
18/06/05
18/06/05
21/06/05
By Furniture a/c
By Rent Paid a/c
By Bank a/c
By Goods/Stock a/c
By Wages Paid a/c

20,000
5,000
1,50,000
10,000
5,000
sub-total   2,14,500   sub-total   1,90,000
25/06/05 By Balance c/d 24,500
Total   2,14,500   Total   2,14,500

## » Total

After writing down the balance being carried down or carried forward, if you add up the two sides starting from the sub-totals, the totals on the two sides would be the same. This is identified as the total for each side of the ledger account.

## » Other Aspects

• The higher of the two totals (sub-totals) is written (in the amount column) as the final total of the two columns.
• The difference between the two sub-totals (i.e. the balance) is then written on the side having the shorter total.

This would make the total of the two sides equal to the higher amount.

• Against the balance that is recorded, write the phrase "Balance c/d", prefixed with
1. "By" if it falls on the credit side (making it By Balance c/d)
(Or)
2. "To" if it falls on the debit side (making it To Balance c/d).

# • Brought Forward

• Meaning = Transfer from the past time period to the current.
• Synonym = Brought Down.
Consider Cash a/c and assume that it is being balanced on a daily basis. At the end of a day, the cashier would be left with a certain amount of cash (how much is what is indicated by the balance in the Cash a/c).

What would he do with that cash?. He would take it over to the next working day.

At the beginning of the next day, what would the cashier say? I have brought down yesterdays cash balance. This explains the use of the phrase Brought Forward or Down.

We say that the balance is brought forward from the previous day or the balance is brought down from the previous day.
(Or) more specifically,
We say that the balance is brought forward to the beginning of the day from the end of the previous day.

# • Where do we use/show this (appear) in the Ledger Account

• The phrase "Balance b/d" or "Balance b/f" is written immediately after the Totals.
• It is written on the side with the higher sub-total.
• It is prefixed by "To" or "By" depending on which side it is being written.
 Dr Cash a/c Cr
Date Particulars J/F Amount
(in Rs)
Date Particulars J/F Amount
(in Rs)
15/06/05
19/06/05
24/06/05
24/06/05
To Capital a/c
To Goods/Stock a/c
To Mr. Natekar a/c
To Commission

2,00,000
12,000
2,000

500
17/06/05
17/06/05
18/06/05
18/06/05
21/06/05
By Furniture a/c
By Rent Paid a/c
By Bank a/c
By Goods/Stock a/c
By Wages Paid a/c

20,000
5,000
1,50,000
10,000
5,000
sub-total   2,14,500   sub-total   1,90,000
25/06/05 By Balance c/d 24,500
Total   2,14,500   Total   2,14,500
25/06/05 To Balance b/d 24,500

## » Other Aspects

• The balance i.e. the difference between the two sub-totals is written on the side having the greater total, just after the row containing the Totals.
• Against the balance that is recorded, write the phrase "Balance b/d", prefixed with
1. "By" if it falls on the credit side (making it By Balance b/d)
(Or)
2. "To" if it falls on the debit side (making it To Balance b/d).

# Use of Sub-Totals is optional

In actual practice, the actual total of the debit side and the credit side, which we marked as sub-totals are not shown in a ledger account.

You may find this method convenient to ensure accuracy and reduce calculation errors. If you wish that the sub-totals should not appear in you final answer, use a pencil for it and erase it after you complete balancing the account.

## » The balanced ledger account without the sub-totals being shown

 Dr Cash a/c Cr
Date Particulars J/F Amount
(in Rs)
Date Particulars J/F Amount
(in Rs)
15/06/05
19/06/05
24/06/05
24/06/05
To Capital a/c
To Goods/Stock a/c
To Mr. Natekar a/c
To Commission

2,00,000
12,000
2,000

500
17/06/05
17/06/05
18/06/05
18/06/05
21/06/05
By Furniture a/c
By Rent Paid a/c
By Bank a/c
By Goods/Stock a/c
By Wages Paid a/c

20,000
5,000
1,50,000
10,000
5,000
25/06/05 By Balance c/d 24,500
Total   2,14,500   Total   2,14,500
25/06/05 To Balance b/d 24,500

The balance in a ledger account being the difference between the two actual totals, it would be very helpful to use the sub-totals. It makes things easier for you. To stress on its optional use we have shown it in light ink.

 Author Credit : The Edifier ... Continued Page 19