Content and design ©2012 Osborne Books Limited DOUBLE-ENTRY ACCOUNTS BALANCING.
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Transcript of Content and design ©2012 Osborne Books Limited DOUBLE-ENTRY ACCOUNTS BALANCING.
Content and design ©2012 Osborne Books Limited
DOUBLE-ENTRY ACCOUNTS
BALANCING
What this presentation covers
Content and design ©2012 Osborne Books Limited
• What is the balance of an account?
• Why do double-entry accounts need to be balanced?
• When do double-entry accounts need to be balanced?
• How do you balance double-entry accounts?
Content and design ©2012 Osborne Books Limited
What are account balances and why are they needed?
• The balance of an account is the difference between the totals of debits and credits
• Examples of account balances include:
• These balances provide useful information for owners and managers
- amounts owed by trade receivables and owed to trade payables
- amounts spent on a specific expense over a period of time
- purchases and sales over a period of time
Content and design ©2012 Osborne Books Limited
• The account needs to be balanced to show how much M Owen owes at the end of June
When are double-entry accounts balanced?
• This is the account of a trade receivable, M Owen, who has been sold goods on credit:
• Double-entry accounts are balanced regularly, often at the end of the month
Content and design ©2012 Osborne Books Limited
Dr
date
details
£ date
details
£
M Owen
5,000
• Add up both money columns to work out totals for the debits and credits
Cr
17 June24 June
Sales
Sales
1,000
2,000
Sales returns
Bank
15 June28 June
1,000
4,000
Step 1 – total the debits and the credits
• Make a separate note of the totals – do NOT write anything in the account … yet
8,000
5,000
Balance b/d 1 June
‘Balance b/d’ of £5,000 on 1st June on the debit side is the balance of the account from the previous month
Content and design ©2012 Osborne Books Limited
Dr
date
details
£ date
details
£
M Owen
5,000
• The difference between the totals: £8,000 minus £5,000
Cr
17 June24 June
Sales
Sales
1,000
2,000
Sales returns
Bank
15 June28 June
1,000
4,000
Step 2 – work out the difference between the higher total and the lower total
• This £3,000 difference is the balance of the account that M Owen owes at the end of June
£8,000 = £3,000
Balance b/d
minus £5,000
= £3,000
1 June
Content and design ©2012 Osborne Books Limited
Dr
date
details
£ date
details
£
M Owen
5,000
• Write the date and the description ‘Balance c/d’ on the side with the lower total, on the next line
Cr
17 June24 June
Sales
Sales
1,000
2,000
Sales returns
Bank
15 June28 June
1,000
4,000
Step 3 – enter the balance in the account
• Then enter the balance of £3,000
Balance b/d
Balance c/d30 June
3,000
1 June
Content and design ©2012 Osborne Books Limited
Dr
date
details
£ date
details
£
M Owen
5,000
• Underline the last entries on the same line and enter the totals of both columns on the next line down and underline
Cr
17 June24 June
Sales
Sales
1,000
2,000
Sales returns
Bank
15 June28 June
1,000
4,000
Step 4 – enter summary totals in the account
Balance b/d
Balance c/d30 June
3,000
1 June
These summary totals will always be the same and underlined in bold (or double underlined).
8,000 8,000
Content and design ©2012 Osborne Books Limited
Dr
date
details
£ date
details
£
M Owen
5,000
• You have entered £3,000 (Balance c/d) on the credit side, but you also need a debit entry
Cr
17 June24 June
Sales
Sales
1,000
2,000
Sales returns
Bank
15 June28 June
1,000
4,000
Step 5 – bring the balance down
Balance b/d
Balance c/d30 June
3,000
8,000
8,000
• Bring down the balance of £3,000 on the opposite (debit) side as ‘Balance b/d’ – but using the next day’s date
1 June
Balance b/d 1 July 3,000
Content and design ©2012 Osborne Books Limited
Dr
date
details
£ date
details
£ M Owen
5,000
Cr
17 June24 June
Sales
Sales
1,000
2,000
Sales returns
Bank
15 June28 June
1,000
4,000
Summary so far
Balance b/d
Balance c/d30 June
3,000
1 June
8,000 8,000
• Add both columns, work out the difference, and write in the date, ‘Balance c/d’, and balancing entry of £3,000
• Finally enter the balancing figure on the opposite side with the next day’s date and ‘Balance b/d’
1 July Balance b/d 3,000
• Total both columns and write in £8,000, remembering to draw the lines
Content and design ©2012 Osborne Books Limited
Dr
date
details
£ date
details
£
J Green
7,000
Cr
15 June18 June
Sales
Sales
2,000
1,000
Bank28 June
6,000
Further example – balancing another trade receivable account
Balance b/d
Balance c/d30 June
4,000
10,000
1 June
Balance b/d 1 July 4,000
Remember – add the totals, enter the difference on the side with the lower total, add summary totals on the same line, then bring down the balance on the opposite side.
10,000
Content and design ©2012 Osborne Books Limited
Dr
date
details
£ date
details
£
Rent Paid
9,000
• An expense account is a running total of a particular expense during the financial year
Cr
20
MarchBank 1,000
Balance c/d31
March 10,000
Balancing an expense account
Balance b/d
10,000
• An expense account is balanced to show how much has been spent to date
1 March
Balance b/d 1 April 10,000
10,000
Content and design ©2012 Osborne Books Limited
Dr
date
details
£ date
details
£
R Gupta
4,000
Cr
18 June Purchases returns
1,000
Balance b/d 1 June 4,000
Balancing a trade payable account which has a credit balance
Bank
6,000
• The balancing process here is exactly the same, but the balancing figure goes on the debit side and the balance is brought down on the credit side
15 June
Balance b/d 1 July 1,000
6,000
30 June Balance c/d 1,000
28 June Purchases 2,000
Content and design ©2012 Osborne Books Limited
Dr
date
details
£ date
details
£
R James
10,000
• If the total of the entries on both sides of the account is the same, it has a nil balance
Cr
18 June
Sales 1,000
Sales returns
Bank
20 June28 June
1,000
Accounts with a nil balance
Balance b/d
11,000 11,000
• If the total is the same, write in the total on both sides and underline the two identical figures
1 June
10,000
Here R James has settled his account and there is no balance to carry down.
Content and design ©2012 Osborne Books Limited
Dr
date
details
£ date
details
£ M Owen
5,000
Cr
17 June24 June
Sales
Sales
1,000
2,000
Sales returns
Bank
15 June28 June
1,000
4,000
Recap – remember how to balance double-entry accounts
Balance b/d
Balance c/d30 June
3,000
1 June
8,000 8,000
1 July Balance b/d 3,000
Total the debits and credits and work out the difference between the totals:
£8,000 - £5,000 = £3,000
Enter the difference on the side of the lower total as ‘Balance c/d’
Enter totals on both sides and underline
Bring down the account balance as ‘Balance b/d’ on the next day’s date
Content and design ©2012 Osborne Books Limited
Summary – balancing double-entry accounts
• Account balances provide useful information to business owners and managers, for example:
- amounts owed by trade receivables and owed to trade payables
• This will help owners and managers to work out profit and to monitor and control expenses
- expenses paid over a period of time
- sales and purchases over a period of time
End of Presentation
Content and design ©2012 Osborne Books Limited
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