Balancing of Ledger Accounts

Balancing of Ledger Accounts

In this article we would explain the process of balancing the ledger accounts. This process has been explained with a sample example.

The recording, classification and balancing of ledger accounts have been explained with two simple journal entries. Purchase of PKR 10,000 and 20,000 from Mr. Ali at different dates have been explained below;

1.   Recording Journal Entries

   Purchases debited being in increase in expense  , while Ali account is credited being increase in liability.

No	Date	Particular	Folio	Dr.	Cr.
1	21.08.2016	Purchases		10,000
	21.08.2016	Ali			10,000
2	21.08.2016	Purchases		20,000
	21.08.2016	Ali			20,000

    2.   Ledger Accounts

Above journal entries have been classified into two accounts i.e. Purchase a/c and Ali a/c. The purchases account is debited, while Ali account is credited.

                                                   Purchase A/c

No	Particulars	Dr.	No	Particulars	Cr
1	Ali	10,000
2	Ali	20,000

                                                     Ali A/c

No	Particulars	Dr	No	Particulars	Cr
			1	Purchases	10,000
			2	Purchases	20,000

At the end of each period, the ledger accounts are balanced to calculate the closing         balance of each account. The process of balancing have been explained below

a)   Total Both Sides

Total of both sides  of an account is calculated and total of greater side would be written at the bottom of both sides ledger account or T account. Accountant can easily work out the closing balance with the help of this total.

b)   Difference is Closing Balance

Difference between the debit and credit side is calculated and such difference is known as balance or closing balance of the account. 

This process is quite straightforward, when all transactions are appearing on one side of the account. The balance may be calculated by simply adding all transaction appearing on one side. 

The process is a bit complicated, when the transactions are appearing on both sides of the account. In this case you need to perform simple mathematics of subtraction i.e. subtracting the greater side total from the smaller side total.

c)   Debit or Credit Balance.

If the debit side is greater than credit side, then balance would be debit balance, otherwise it would be credit balance.

In below example, the purchases account has debit balance, because purchases debit side is greater, while Ali’s account has credit balance, because Ali’s a/c credit side is greater.

                                                     Purchase A/c

No	Particulars	Dr	No	Particulars	Cr
1	Ali	10,000
2	Ali	20,000	Balance		30,000
Total		30,000	Total		30,000

                                                       Ali A/c

No	Particulars	Dr	No	Particulars	Cr
			1	Purchases	10,000
	Balance	30,000	2	Purchases	20,000
		30,000			30,000

d)  Transfer of Balance

Debit balance transfer to debit side of trial balance, while credit balance transfer on credit side. The following trial balance explains the balance transfer process

Head of Accounts	Debit	Credit
Purchases	30,000
Ali		30,000
Total	30,000	30,000

In this article we have briefly explained the balancing process of ledger accounts. Examples of balancing the ledger account are available in the example section of this blog.