BALANCING OFF ACCOUNTS At the end of each accounting period the figures in each debtor account are examined

in order to summarize the situation they present before preparing financial statements of any business. Accounts whose debit and credit sides total each other are required to be closed since they will not have any affect on the balance sheet as whatever the debtor owed to the business during the financial year has been received. However businesses normally find themselves in situations whereby the entire amount has not been settled by the debtor whereby both sides of the account will not be equal to one another. This is where the accounts are balanced before the start of the new financial month or year.

The same principles apply when creditor accounts are balanced. While all debtors are supposed to have debit balances brought down similarly all creditors are supposed to have credit balances brought down with carried down balances on the opposite sides of each account.
BALANCING
THE ACCOUNTS IS DONE IN FIVE STAGES:

Add up both sides to find out their totals; educt the smaller total from the larger to find the balance; !nter the balance on the side with the smallest total "#nown as balance carried down$; !nter totals that should level with each other;

%ow enter the balance on the line below the totals on the opposite side to the balance shown above the totals. "#nown as balance brought down$;

!E A!ING THE

T!IAL BALANCE

The double entry system revolves around the following principle&

Total Debit Entries " Total

'or each debit entry there is a credit entry; 'or each credit entry there is a debit entry. (n order to chec# that there is a matching credit entry for every debit entry a Trial Balance is prepared. The form of trial balance used by accountants is a list of account balances arranged according to whether they are debit or credit balances.

The trial balance is normally prepared at the last day of the accounting period to which it relates and provides a snapshot of the balances on the ledger accounts at that date. The trial balance can be prepared at any time however it is a normal practice to prepare one at the end of an accounting period before preparing the profit ) loss account and balance sheet. The profit and loss account shows what profit has been earned in a period while the balance sheet shows what assets ) liabilities of a business are at the end of the period. !ven though one would consider that if the trial balance is balanced with both sides equaling each other your entries would be correct however there are several types of errors that will not affect the balancing of a trial balance e.g. omitting a transaction altogether.

THE U! OSE OF THE T!IAL BALANCE #A$ BE

SU##A!I%ED AS FOLLO&S

To ascertain whether the total of the accounts with debit balances equal the total of the accounts with credit balances. (f so* this proves that the same money value of each transaction has been entered on both sides of the ledger. (t also proves the arithmetic accuracy of the ledger accounts. However* a trial balance can agree but there may still be errors in the ledger. 'or example* an amount may have been entered on the correct side but in the wrong account* or a wrong debit entry could be supported by a wrong credit entry.
T$
ES OF E!!O!S THAT CAUSE A T!IAL BALANCE TO DISAG!EE

Arit'(etic errors: such as the incorrect addition of the amounts on one side of an account and or in the calculation of a balance;

ostin) errors: these may ta#e three forms& Where a transaction has been entered on one side of the ledger but not on the other side; Where a transaction has been entered twice on the same side; Where the correct amount of a transaction has been entered on one side of the ledger but the wrong amount on the other side e.g. +$ where zero is omitted at the end of an amount ",-. entered as ,-$ /$ where the correct amount of a transaction has been entered on one side of the ledger but two or more of the figures have been reversed when the entry was made on the other side "amount of 0/0 entered as 00/$ E*traction error: where the correct balance is shown in the ledger account but the wrong amount is entered on the

trial balance or the correct amount is put on the wrong side; E+A# LES FO! THE T$ ES OF E!!O!S
DESC!IBED ABOVE

Error: The debit side of the cash account has been overcast by +*... and this is reflected in the balance brought down. Correction: 1redit the cash account with +*.... Error: 1ash purchases of /.. have been credited in the cash account but not entered in the purchases account. Correction: ebit the purchases account with /...

Error:

2ent paid of 3. has been credited in the cash account but also credited in the rent account. Correction: ebit the rent account with +... Error: 4an# charges of /0 shown in the ban# account have been debited to the ban# charges account as 0/. Correction: 1redit the ban# charges account with -. Error: The sales account shows a balance of /*... which has been entered on the trial balance as /... Correction: 2eplace the wrong amount entered on the trial with the correct amount.