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10.1 Balancing vs. Closing ledgers

The document discusses the differences between balancing accounts and closing ledgers. Balancing accounts leaves account balances to carry forward to the next period, while closing ledgers transfers account balances to financial reports to "close off" the period. The Balance Sheet presents a snapshot of financial position as at a point in time, while the Income Statement aggregates revenues and expenses for a specific period, such as a month. Closing ledger accounts is necessary to accurately prepare these distinct financial statements for a given period and then start fresh for the next period.

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10.1 BALANCING VS. CLOSING LEDGERS
© Michael Allison, Trinity Grammar School. Author’s permission required for external use  What’s the difference between?... 10.1 BALANCING VS. CLOSING LEDGERS Income Statement for the month ended 30 June 2015 Balance Sheet as at 30 June 2015
© Michael Allison, Trinity Grammar School. Author’s permission required for external use Period 1 Period 2 Period 3 Balance Sheet Income Statement The firm only has one Balance Sheet – it carries forward over time and is prepared “as at” a certain point in time. The firm prepares an Income Statement every period – the old report is closed off so a new report can be prepared each period. Income Statement Income Statement 10.1 BALANCING VS. CLOSING LEDGERS
© Michael Allison, Trinity Grammar School. Author’s permission required for external use  Up until now, at the end of the period we have balanced all accounts… Assets… Cash at Bank [A] 1 Jun Balance 10000 30 Jun Cash Payments 18000 30 Jun Cash Receipts 20000 30 Jun Balance 12000 30000 30000 1 Jul Balance 12000 Cash at Bank [A] 1 Jun Balance 10000 30 Jun Cash Payments 18000 30 Jun Cash Receipts 20000 30 Jun Balance 12000 30000 30000 1 Jul Balance 12000 Cash at Bank [A] 1 Jun Balance 10000 30 Jun Cash Payments 18000 30 Jun Cash Receipts 20000 30 Jun Balance 12000 30000 30000 1 Jul Balance 12000 Cash at Bank [A] 1 Jun Balance 10000 30 Jun Cash Payments 18000 30 Jun Cash Receipts 20000 30 Jun Balance 12000 30000 30000 1 Jul Balance 12000 Cash at Bank [A] 1 Jun Balance 10000 30 Jun Cash Payments 18000 30 Jun Cash Receipts 20000 30 Jun Balance 12000 30000 30000 1 Jul Balance 12000 10.1 BALANCING VS. CLOSING LEDGERS
© Michael Allison, Trinity Grammar School. Author’s permission required for external use  Up until now, at the end of the period we have balanced all accounts… Liabilities… Creditors Control [L] 30 Jun Cash at Bank 6000 1 Jun Balance 3000 30 Jun Balance 11000 30 Jun Stock Control 14000 17000 17000 1 Jul Balance 11000 Creditors Control [L] 30 Jun Cash at Bank 6000 1 Jun Balance 3000 30 Jun Balance 11000 30 Jun Stock Control 14000 17000 17000 1 Jul Balance 11000 Creditors Control [L] 30 Jun Cash at Bank 6000 1 Jun Balance 3000 30 Jun Balance 11000 30 Jun Stock Control 14000 17000 17000 1 Jul Balance 11000 Creditors Control [L] 30 Jun Cash at Bank 6000 1 Jun Balance 3000 30 Jun Balance 11000 30 Jun Stock Control 14000 17000 17000 1 Jul Balance 11000 Creditors Control [L] 30 Jun Cash at Bank 6000 1 Jun Balance 3000 30 Jun Balance 11000 30 Jun Stock Control 14000 17000 17000 1 Jul Balance 11000 10.1 BALANCING VS. CLOSING LEDGERS
© Michael Allison, Trinity Grammar School. Author’s permission required for external use  Up until now, at the end of the period we have balanced all accounts… Owner’s Equity… Capital [OE] 1 Jun Balance 72000 30 Jun Balance 82000 30 Jun Cash at Bank 10000 82000 82000 1 Jul Balance 82000 Capital [OE] 1 Jun Balance 72000 30 Jun Balance 82000 30 Jun Cash at Bank 10000 82000 82000 1 Jul Balance 82000 Capital [OE] 1 Jun Balance 72000 30 Jun Balance 82000 30 Jun Cash at Bank 10000 82000 82000 1 Jul Balance 82000 Capital [OE] 1 Jun Balance 72000 30 Jun Balance 82000 30 Jun Cash at Bank 10000 82000 82000 1 Jul Balance 82000 Capital [OE] 1 Jun Balance 72000 30 Jun Balance 82000 30 Jun Cash at Bank 10000 82000 82000 1 Jul Balance 82000 10.1 BALANCING VS. CLOSING LEDGERS
© Michael Allison, Trinity Grammar School. Author’s permission required for external use  Up until now, at the end of the period we have balanced all accounts… Revenue… Sales [R] 30 Jun Cash at Bank 35000 30 Jun Balance 53000 30 Jun Debtors Control 18000 53000 53000 1 Jul Balance 53000 Sales [R] 30 Jun Cash at Bank 35000 30 Jun Balance 53000 30 Jun Debtors Control 18000 53000 53000 1 Jul Balance 53000 Sales [R] 30 Jun Cash at Bank 35000 30 Jun Balance 53000 30 Jun Debtors Control 18000 53000 53000 1 Jul Balance 53000 Sales [R] 30 Jun Cash at Bank 35000 30 Jun Balance 53000 30 Jun Debtors Control 18000 53000 53000 1 Jul Balance 53000 Sales [R] 30 Jun Cash at Bank 35000 30 Jun Balance 53000 30 Jun Debtors Control 18000 53000 53000 1 Jul Balance 53000 10.1 BALANCING VS. CLOSING LEDGERS
© Michael Allison, Trinity Grammar School. Author’s permission required for external use  Up until now, at the end of the period we have balanced all accounts… Expenses… Advertising [E] 30 Jun Cash at Bank 4000 30 Jun Stock Control 1000 30 Jun Balance 5000 5000 5000 1 Jul Balance 5000 Advertising [E] 30 Jun Cash at Bank 4000 30 Jun Stock Control 1000 30 Jun Balance 5000 5000 5000 1 Jul Balance 5000 Advertising [E] 30 Jun Cash at Bank 4000 30 Jun Stock Control 1000 30 Jun Balance 5000 5000 5000 1 Jul Balance 5000 Advertising [E] 30 Jun Cash at Bank 4000 30 Jun Stock Control 1000 30 Jun Balance 5000 5000 5000 1 Jul Balance 5000 Advertising [E] 30 Jun Cash at Bank 4000 30 Jun Stock Control 1000 30 Jun Balance 5000 5000 5000 1 Jul Balance 5000 10.1 BALANCING VS. CLOSING LEDGERS
© Michael Allison, Trinity Grammar School. Author’s permission required for external use  Then, the balances of each account have been put into the Trial Balance… Trial Balance as at 30 June 2015 $ $ Cash at bank [A] 12000 GST clearing [L] 1400 Debtors control [A] 4210 Creditors control [L] 11000 Stock control [A] 21380 Bank loan [L] 6000 Delivery vehicle [A] 83000 Capital [OE] 82000 Shop fittings [A] 10000 Discount revenue [R] 200 Discount expense [E] 120 Sales [R] 53000 Cost of sales [E] 3120 Drawings [-OE] 1230 Wages [E] 7600 Rent [E] 5940 Advertising [E] 5000 153600 153600 Trial Balance as at 30 June 2015 $ $ Cash at bank [A] 12000 GST clearing [L] 1400 Debtors control [A] 4210 Creditors control [L] 11000 Stock control [A] 21380 Bank loan [L] 6000 Delivery vehicle [A] 83000 Capital [OE] 82000 Shop fittings [A] 10000 Discount revenue [R] 200 Discount expense [E] 120 Sales [R] 53000 Cost of sales [E] 3120 Drawings [-OE] 1230 Wages [E] 7600 Rent [E] 5940 Advertising [E] 5000 153600 153600 Trial Balance as at 30 June 2015 $ $ Cash at bank [A] 12000 GST clearing [L] 1400 Debtors control [A] 4210 Creditors control [L] 11000 Stock control [A] 21380 Bank loan [L] 6000 Delivery vehicle [A] 83000 Capital [OE] 82000 Shop fittings [A] 10000 Discount revenue [R] 200 Discount expense [E] 120 Sales [R] 53000 Cost of sales [E] 3120 Drawings [-OE] 1230 Wages [E] 7600 Rent [E] 5940 Advertising [E] 5000 153600 153600 Trial Balance as at 30 June 2015 $ $ Cash at bank [A] 12000 GST clearing [L] 1400 Debtors control [A] 4210 Creditors control [L] 11000 Stock control [A] 21380 Bank loan [L] 6000 Delivery vehicle [A] 83000 Capital [OE] 82000 Shop fittings [A] 10000 Discount revenue [R] 200 Discount expense [E] 120 Sales [R] 53000 Cost of sales [E] 3120 Drawings [-OE] 1230 Wages [E] 7600 Rent [E] 5940 Advertising [E] 5000 153600 153600 Trial Balance as at 30 June 2015 $ $ Cash at bank [A] 12000 GST clearing [L] 1400 Debtors control [A] 4210 Creditors control [L] 11000 Stock control [A] 21380 Bank loan [L] 6000 Delivery vehicle [A] 83000 Capital [OE] 82000 Shop fittings [A] 10000 Discount revenue [R] 200 Discount expense [E] 120 Sales [R] 53000 Cost of sales [E] 3120 Drawings [-OE] 1230 Wages [E] 7600 Rent [E] 5940 Advertising [E] 5000 153600 153600 10.1 BALANCING VS. CLOSING LEDGERS
© Michael Allison, Trinity Grammar School. Author’s permission required for external use  Then each of these accounts will go into one of two reports: 1. Balance Sheet:  Assets  Liabilities  Owner’s Equity 2. Income Statement  Revenues  Expenses Trial Balance as at 30 June 2015 $ $ Cash at bank [A] 12000 GST clearing [L] 1400 Debtors control [A] 4210 Creditors control [L] 11000 Stock control [A] 21380 Bank loan [L] 6000 Delivery vehicle [A] 83000 Capital [OE] 82000 Shop fittings [A] 10000 Discount revenue [R] 200 Discount expense [E] 120 Sales [R] 53000 Cost of sales [E] 3120 Drawings [-OE] 1230 Wages [E] 7600 Rent [E] 5940 Advertising [E] 5000 153600 153600 Trial Balance as at 30 June 2015 $ $ Cash at bank [A] 12000 GST clearing [L] 1400 Debtors control [A] 4210 Creditors control [L] 11000 Stock control [A] 21380 Bank loan [L] 6000 Delivery vehicle [A] 83000 Capital [OE] 82000 Shop fittings [A] 10000 Discount revenue [R] 200 Discount expense [E] 120 Sales [R] 53000 Cost of sales [E] 3120 Drawings [-OE] 1230 Wages [E] 7600 Rent [E] 5940 Advertising [E] 5000 153600 153600 Trial Balance as at 30 June 2015 $ $ Cash at bank [A] 12000 GST clearing [L] 1400 Debtors control [A] 4210 Creditors control [L] 11000 Stock control [A] 21380 Bank loan [L] 6000 Delivery vehicle [A] 83000 Capital [OE] 82000 Shop fittings [A] 10000 Discount revenue [R] 200 Discount expense [E] 120 Sales [R] 53000 Cost of sales [E] 3120 Drawings [-OE] 1230 Wages [E] 7600 Rent [E] 5940 Advertising [E] 5000 153600 153600 Trial Balance as at 30 June 2015 $ $ Cash at bank [A] 12000 GST clearing [L] 1400 Debtors control [A] 4210 Creditors control [L] 11000 Stock control [A] 21380 Bank loan [L] 6000 Delivery vehicle [A] 83000 Capital [OE] 82000 Shop fittings [A] 10000 Discount revenue [R] 200 Discount expense [E] 120 Sales [R] 53000 Cost of sales [E] 3120 Drawings [-OE] 1230 Wages [E] 7600 Rent [E] 5940 Advertising [E] 5000 153600 153600 Trial Balance as at 30 June 2015 $ $ Cash at bank [A] 12000 GST clearing [L] 1400 Debtors control [A] 4210 Creditors control [L] 11000 Stock control [A] 21380 Bank loan [L] 6000 Delivery vehicle [A] 83000 Capital [OE] 82000 Shop fittings [A] 10000 Discount revenue [R] 200 Discount expense [E] 120 Sales [R] 53000 Cost of sales [E] 3120 Drawings [-OE] 1230 Wages [E] 7600 Rent [E] 5940 Advertising [E] 5000 153600 153600 Trial Balance as at 30 June 2015 $ $ Cash at bank [A] 12000 GST clearing [L] 1400 Debtors control [A] 4210 Creditors control [L] 11000 Stock control [A] 21380 Bank loan [L] 6000 Delivery vehicle [A] 83000 Capital [OE] 82000 Shop fittings [A] 10000 Discount revenue [R] 200 Discount expense [E] 120 Sales [R] 53000 Cost of sales [E] 3120 Drawings [-OE] 1230 Wages [E] 7600 Rent [E] 5940 Advertising [E] 5000 153600 153600 10.1 BALANCING VS. CLOSING LEDGERS
© Michael Allison, Trinity Grammar School. Author’s permission required for external use  But balancing all accounts at the end of the period is wrong WHY?Assets… Cash at Bank [A] 1 Jun Balance 10000 30 Jun Cash Payments 18000 30 Jun Cash Receipts 20000 30 Jun Balance 12000 30000 30000 1 Jul Balance 12000 Revenue… Sales [R] 30 Jun Cash at Bank 35000 30 Jun Balance 53000 30 Jun Debtors Control 18000 53000 53000 1 Jul Balance 53000 10.1 BALANCING VS. CLOSING LEDGERS
© Michael Allison, Trinity Grammar School. Author’s permission required for external use Balance Sheet as at 30 June 2015 $ $  The difference is between the Balance Sheet and the Income Statement Income Statement for month ended 30 June 2015 $ $ What is the difference between “as at” and “for month ended”? 10.1 BALANCING VS. CLOSING LEDGERS
© Michael Allison, Trinity Grammar School. Author’s permission required for external use Balance Sheet • Assumes the business will exist forever (as per the Going Concern Principle) • Represents a “snap shot” of the firm’s financial position at any point in time • For example, what is the firm’s financial position “as at 30 June 2015”? Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Balance Sheet as at 30 June 2015Balance Sheet as at 31 July 2015Balance Sheet as at 31 Aug 2015Balance Sheet as at 30 Sep 2015 Assets Liabilities Owner’s Equity 10.1 BALANCING VS. CLOSING LEDGERS
© Michael Allison, Trinity Grammar School. Author’s permission required for external use Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Income Statement for June 2015 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Income Statement for July 2015 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Income Statement for Aug 2015 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Income Statement for Sep 2015 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Income Statement • Relates to one period only • Measures the firm’s financial performance • For example, what was the firm’s profit “during June 2015”? Revenue Expenses 10.1 BALANCING VS. CLOSING LEDGERS
© Michael Allison, Trinity Grammar School. Author’s permission required for external use  The accounts in the Balance Sheet must be balanced as they will continue into next period Cash at Bank [A] 1 Jun Balance 10000 30 Jun Cash Payments 18000 30 Jun Cash Receipts 20000 30 Jun Balance 12000 30000 30000 1 Jul Balance 12000 Cash at Bank [A] 1 Jun Balance 10000 30 Jun Cash Payments 18000 30 Jun Cash Receipts 20000 30 Jun Balance 12000 30000 30000 1 Jul Balance 12000 Cash at Bank [A] 1 Jun Balance 10000 30 Jun Cash Payments 18000 30 Jun Cash Receipts 20000 30 Jun Balance 12000 30000 30000 1 Jul Balance 12000 Cash at Bank [A] 1 Jun Balance 10000 30 Jun Cash Payments 18000 30 Jun Cash Receipts 20000 30 Jun Balance 12000 30000 30000 1 Jul Balance 12000 Cash at Bank [A] 1 Jun Balance 10000 30 Jun Cash Payments 18000 30 Jun Cash Receipts 20000 30 Jun Balance 12000 30000 30000 1 Jul Balance 12000 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Balance Sheet as at 30 June 2015 The firm’s cash balance of $12,000 will continue into the future 10.1 BALANCING VS. CLOSING LEDGERS
© Michael Allison, Trinity Grammar School. Author’s permission required for external use  The accounts in the Income Statement are relevant to one period only Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Sales [R] 30 Jun Cash at Bank 35000 30 Jun Balance 53000 30 Jun Debtors Control 18000 53000 53000 1 Jul Balance 53000 Income Statement for June 2015 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec The $53,000 of sales relates only to June The $53,000 of sales are NOT relevant to future periods… Sales [R] 30 Jun Cash at Bank 35000 30 Jun Balance 53000 30 Jun Debtors Control 18000 53000 53000 1 Jul Balance 53000 Sales [R] 30 Jun Cash at Bank 35000 30 Jun Balance 53000 30 Jun Debtors Control 18000 53000 53000 1 Jul Balance 53000 So there is no need to balance this ledger into future periods… The sales in June are NOT related to the sales in July Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec The sales in July are NOT related to the sales in August Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec The sales in August are NOT related to the sales in September Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 10.1 BALANCING VS. CLOSING LEDGERS
© Michael Allison, Trinity Grammar School. Author’s permission required for external use  So every account must be either: Balanced The balance of the account at the end of the period is carried forward into next period. Vs Closed The balance of the account is reset to zero at the end of the period Assets Liabilities Owner’s Equity Cash at Bank [A] 1/6 Balance 10000 30/6 Cash Pay. 18000 30/6 Cash Rec. 20000 30/6 Balance 12000 30000 30000 1/7 Balance 12000 Sales [R] 30/6 Cash at Bank 35000 30/6 53000 30/6 Debtors Cont. 18000 53000 53000 Cash at Bank [A] 1/6 Balance 10000 30/6 Cash Pay. 18000 30/6 Cash Rec. 20000 30/6 Balance 12000 30000 30000 1/7 Balance 12000 Cash at Bank [A] 1/6 Balance 10000 30/6 Cash Pay. 18000 30/6 Cash Rec. 20000 30/6 Balance 12000 30000 30000 1/7 Balance 12000 Cash at Bank [A] 1/6 Balance 10000 30/6 Cash Pay. 18000 30/6 Cash Rec. 20000 30/6 Balance 12000 30000 30000 1/7 Balance 12000 Cash at Bank [A] 1/6 Balance 10000 30/6 Cash Pay. 18000 30/6 Cash Rec. 20000 30/6 Balance 12000 30000 30000 1/7 Balance 12000 Sales [R] 30/6 Cash at Bank 35000 30/6 53000 30/6 Debtors Cont. 18000 53000 53000 Sales [R] 30/6 Cash at Bank 35000 30/6 53000 30/6 Debtors Cont. 18000 53000 53000 Sales [R] 30/6 Cash at Bank 35000 30/6 53000 30/6 Debtors Cont. 18000 53000 53000 Revenue Expenses Drawings 10.1 BALANCING VS. CLOSING LEDGERS
© Michael Allison, Trinity Grammar School. Author’s permission required for external use  The difference between balancing and closing… June July Cash at Bank [A] 1/6 Balance 10000 30/6 Cash Pay. 18000 30/6 Cash Rec. 20000 30/6 Balance 12000 30000 30000 1/7 Balance 12000 Sales [R] 30/6 Cash at Bank 35000 30/6 53000 30/6 Debtors Cont. 18000 53000 53000 Balancing Closing Cash at Bank [A] 1/7 Balance 12000 Sales [R] 30/6 Cash at Bank 35000 30/6 53000 30/6 Debtors Cont. 18000 53000 53000 10.1 BALANCING VS. CLOSING LEDGERS
© Michael Allison, Trinity Grammar School. Author’s permission required for external use TASK In-class Homework SQ1 X SQ2 X

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10.1 Balancing vs. Closing ledgers

  • 1.
  • 2.
    © Michael Allison,Trinity Grammar School. Author’s permission required for external use  What’s the difference between?... 10.1 BALANCING VS. CLOSING LEDGERS Income Statement for the month ended 30 June 2015 Balance Sheet as at 30 June 2015
  • 3.
    © Michael Allison,Trinity Grammar School. Author’s permission required for external use Period 1 Period 2 Period 3 Balance Sheet Income Statement The firm only has one Balance Sheet – it carries forward over time and is prepared “as at” a certain point in time. The firm prepares an Income Statement every period – the old report is closed off so a new report can be prepared each period. Income Statement Income Statement 10.1 BALANCING VS. CLOSING LEDGERS
  • 4.
    © Michael Allison,Trinity Grammar School. Author’s permission required for external use  Up until now, at the end of the period we have balanced all accounts… Assets… Cash at Bank [A] 1 Jun Balance 10000 30 Jun Cash Payments 18000 30 Jun Cash Receipts 20000 30 Jun Balance 12000 30000 30000 1 Jul Balance 12000 Cash at Bank [A] 1 Jun Balance 10000 30 Jun Cash Payments 18000 30 Jun Cash Receipts 20000 30 Jun Balance 12000 30000 30000 1 Jul Balance 12000 Cash at Bank [A] 1 Jun Balance 10000 30 Jun Cash Payments 18000 30 Jun Cash Receipts 20000 30 Jun Balance 12000 30000 30000 1 Jul Balance 12000 Cash at Bank [A] 1 Jun Balance 10000 30 Jun Cash Payments 18000 30 Jun Cash Receipts 20000 30 Jun Balance 12000 30000 30000 1 Jul Balance 12000 Cash at Bank [A] 1 Jun Balance 10000 30 Jun Cash Payments 18000 30 Jun Cash Receipts 20000 30 Jun Balance 12000 30000 30000 1 Jul Balance 12000 10.1 BALANCING VS. CLOSING LEDGERS
  • 5.
    © Michael Allison,Trinity Grammar School. Author’s permission required for external use  Up until now, at the end of the period we have balanced all accounts… Liabilities… Creditors Control [L] 30 Jun Cash at Bank 6000 1 Jun Balance 3000 30 Jun Balance 11000 30 Jun Stock Control 14000 17000 17000 1 Jul Balance 11000 Creditors Control [L] 30 Jun Cash at Bank 6000 1 Jun Balance 3000 30 Jun Balance 11000 30 Jun Stock Control 14000 17000 17000 1 Jul Balance 11000 Creditors Control [L] 30 Jun Cash at Bank 6000 1 Jun Balance 3000 30 Jun Balance 11000 30 Jun Stock Control 14000 17000 17000 1 Jul Balance 11000 Creditors Control [L] 30 Jun Cash at Bank 6000 1 Jun Balance 3000 30 Jun Balance 11000 30 Jun Stock Control 14000 17000 17000 1 Jul Balance 11000 Creditors Control [L] 30 Jun Cash at Bank 6000 1 Jun Balance 3000 30 Jun Balance 11000 30 Jun Stock Control 14000 17000 17000 1 Jul Balance 11000 10.1 BALANCING VS. CLOSING LEDGERS
  • 6.
    © Michael Allison,Trinity Grammar School. Author’s permission required for external use  Up until now, at the end of the period we have balanced all accounts… Owner’s Equity… Capital [OE] 1 Jun Balance 72000 30 Jun Balance 82000 30 Jun Cash at Bank 10000 82000 82000 1 Jul Balance 82000 Capital [OE] 1 Jun Balance 72000 30 Jun Balance 82000 30 Jun Cash at Bank 10000 82000 82000 1 Jul Balance 82000 Capital [OE] 1 Jun Balance 72000 30 Jun Balance 82000 30 Jun Cash at Bank 10000 82000 82000 1 Jul Balance 82000 Capital [OE] 1 Jun Balance 72000 30 Jun Balance 82000 30 Jun Cash at Bank 10000 82000 82000 1 Jul Balance 82000 Capital [OE] 1 Jun Balance 72000 30 Jun Balance 82000 30 Jun Cash at Bank 10000 82000 82000 1 Jul Balance 82000 10.1 BALANCING VS. CLOSING LEDGERS
  • 7.
    © Michael Allison,Trinity Grammar School. Author’s permission required for external use  Up until now, at the end of the period we have balanced all accounts… Revenue… Sales [R] 30 Jun Cash at Bank 35000 30 Jun Balance 53000 30 Jun Debtors Control 18000 53000 53000 1 Jul Balance 53000 Sales [R] 30 Jun Cash at Bank 35000 30 Jun Balance 53000 30 Jun Debtors Control 18000 53000 53000 1 Jul Balance 53000 Sales [R] 30 Jun Cash at Bank 35000 30 Jun Balance 53000 30 Jun Debtors Control 18000 53000 53000 1 Jul Balance 53000 Sales [R] 30 Jun Cash at Bank 35000 30 Jun Balance 53000 30 Jun Debtors Control 18000 53000 53000 1 Jul Balance 53000 Sales [R] 30 Jun Cash at Bank 35000 30 Jun Balance 53000 30 Jun Debtors Control 18000 53000 53000 1 Jul Balance 53000 10.1 BALANCING VS. CLOSING LEDGERS
  • 8.
    © Michael Allison,Trinity Grammar School. Author’s permission required for external use  Up until now, at the end of the period we have balanced all accounts… Expenses… Advertising [E] 30 Jun Cash at Bank 4000 30 Jun Stock Control 1000 30 Jun Balance 5000 5000 5000 1 Jul Balance 5000 Advertising [E] 30 Jun Cash at Bank 4000 30 Jun Stock Control 1000 30 Jun Balance 5000 5000 5000 1 Jul Balance 5000 Advertising [E] 30 Jun Cash at Bank 4000 30 Jun Stock Control 1000 30 Jun Balance 5000 5000 5000 1 Jul Balance 5000 Advertising [E] 30 Jun Cash at Bank 4000 30 Jun Stock Control 1000 30 Jun Balance 5000 5000 5000 1 Jul Balance 5000 Advertising [E] 30 Jun Cash at Bank 4000 30 Jun Stock Control 1000 30 Jun Balance 5000 5000 5000 1 Jul Balance 5000 10.1 BALANCING VS. CLOSING LEDGERS
  • 9.
    © Michael Allison,Trinity Grammar School. Author’s permission required for external use  Then, the balances of each account have been put into the Trial Balance… Trial Balance as at 30 June 2015 $ $ Cash at bank [A] 12000 GST clearing [L] 1400 Debtors control [A] 4210 Creditors control [L] 11000 Stock control [A] 21380 Bank loan [L] 6000 Delivery vehicle [A] 83000 Capital [OE] 82000 Shop fittings [A] 10000 Discount revenue [R] 200 Discount expense [E] 120 Sales [R] 53000 Cost of sales [E] 3120 Drawings [-OE] 1230 Wages [E] 7600 Rent [E] 5940 Advertising [E] 5000 153600 153600 Trial Balance as at 30 June 2015 $ $ Cash at bank [A] 12000 GST clearing [L] 1400 Debtors control [A] 4210 Creditors control [L] 11000 Stock control [A] 21380 Bank loan [L] 6000 Delivery vehicle [A] 83000 Capital [OE] 82000 Shop fittings [A] 10000 Discount revenue [R] 200 Discount expense [E] 120 Sales [R] 53000 Cost of sales [E] 3120 Drawings [-OE] 1230 Wages [E] 7600 Rent [E] 5940 Advertising [E] 5000 153600 153600 Trial Balance as at 30 June 2015 $ $ Cash at bank [A] 12000 GST clearing [L] 1400 Debtors control [A] 4210 Creditors control [L] 11000 Stock control [A] 21380 Bank loan [L] 6000 Delivery vehicle [A] 83000 Capital [OE] 82000 Shop fittings [A] 10000 Discount revenue [R] 200 Discount expense [E] 120 Sales [R] 53000 Cost of sales [E] 3120 Drawings [-OE] 1230 Wages [E] 7600 Rent [E] 5940 Advertising [E] 5000 153600 153600 Trial Balance as at 30 June 2015 $ $ Cash at bank [A] 12000 GST clearing [L] 1400 Debtors control [A] 4210 Creditors control [L] 11000 Stock control [A] 21380 Bank loan [L] 6000 Delivery vehicle [A] 83000 Capital [OE] 82000 Shop fittings [A] 10000 Discount revenue [R] 200 Discount expense [E] 120 Sales [R] 53000 Cost of sales [E] 3120 Drawings [-OE] 1230 Wages [E] 7600 Rent [E] 5940 Advertising [E] 5000 153600 153600 Trial Balance as at 30 June 2015 $ $ Cash at bank [A] 12000 GST clearing [L] 1400 Debtors control [A] 4210 Creditors control [L] 11000 Stock control [A] 21380 Bank loan [L] 6000 Delivery vehicle [A] 83000 Capital [OE] 82000 Shop fittings [A] 10000 Discount revenue [R] 200 Discount expense [E] 120 Sales [R] 53000 Cost of sales [E] 3120 Drawings [-OE] 1230 Wages [E] 7600 Rent [E] 5940 Advertising [E] 5000 153600 153600 10.1 BALANCING VS. CLOSING LEDGERS
  • 10.
    © Michael Allison,Trinity Grammar School. Author’s permission required for external use  Then each of these accounts will go into one of two reports: 1. Balance Sheet:  Assets  Liabilities  Owner’s Equity 2. Income Statement  Revenues  Expenses Trial Balance as at 30 June 2015 $ $ Cash at bank [A] 12000 GST clearing [L] 1400 Debtors control [A] 4210 Creditors control [L] 11000 Stock control [A] 21380 Bank loan [L] 6000 Delivery vehicle [A] 83000 Capital [OE] 82000 Shop fittings [A] 10000 Discount revenue [R] 200 Discount expense [E] 120 Sales [R] 53000 Cost of sales [E] 3120 Drawings [-OE] 1230 Wages [E] 7600 Rent [E] 5940 Advertising [E] 5000 153600 153600 Trial Balance as at 30 June 2015 $ $ Cash at bank [A] 12000 GST clearing [L] 1400 Debtors control [A] 4210 Creditors control [L] 11000 Stock control [A] 21380 Bank loan [L] 6000 Delivery vehicle [A] 83000 Capital [OE] 82000 Shop fittings [A] 10000 Discount revenue [R] 200 Discount expense [E] 120 Sales [R] 53000 Cost of sales [E] 3120 Drawings [-OE] 1230 Wages [E] 7600 Rent [E] 5940 Advertising [E] 5000 153600 153600 Trial Balance as at 30 June 2015 $ $ Cash at bank [A] 12000 GST clearing [L] 1400 Debtors control [A] 4210 Creditors control [L] 11000 Stock control [A] 21380 Bank loan [L] 6000 Delivery vehicle [A] 83000 Capital [OE] 82000 Shop fittings [A] 10000 Discount revenue [R] 200 Discount expense [E] 120 Sales [R] 53000 Cost of sales [E] 3120 Drawings [-OE] 1230 Wages [E] 7600 Rent [E] 5940 Advertising [E] 5000 153600 153600 Trial Balance as at 30 June 2015 $ $ Cash at bank [A] 12000 GST clearing [L] 1400 Debtors control [A] 4210 Creditors control [L] 11000 Stock control [A] 21380 Bank loan [L] 6000 Delivery vehicle [A] 83000 Capital [OE] 82000 Shop fittings [A] 10000 Discount revenue [R] 200 Discount expense [E] 120 Sales [R] 53000 Cost of sales [E] 3120 Drawings [-OE] 1230 Wages [E] 7600 Rent [E] 5940 Advertising [E] 5000 153600 153600 Trial Balance as at 30 June 2015 $ $ Cash at bank [A] 12000 GST clearing [L] 1400 Debtors control [A] 4210 Creditors control [L] 11000 Stock control [A] 21380 Bank loan [L] 6000 Delivery vehicle [A] 83000 Capital [OE] 82000 Shop fittings [A] 10000 Discount revenue [R] 200 Discount expense [E] 120 Sales [R] 53000 Cost of sales [E] 3120 Drawings [-OE] 1230 Wages [E] 7600 Rent [E] 5940 Advertising [E] 5000 153600 153600 Trial Balance as at 30 June 2015 $ $ Cash at bank [A] 12000 GST clearing [L] 1400 Debtors control [A] 4210 Creditors control [L] 11000 Stock control [A] 21380 Bank loan [L] 6000 Delivery vehicle [A] 83000 Capital [OE] 82000 Shop fittings [A] 10000 Discount revenue [R] 200 Discount expense [E] 120 Sales [R] 53000 Cost of sales [E] 3120 Drawings [-OE] 1230 Wages [E] 7600 Rent [E] 5940 Advertising [E] 5000 153600 153600 10.1 BALANCING VS. CLOSING LEDGERS
  • 11.
    © Michael Allison,Trinity Grammar School. Author’s permission required for external use  But balancing all accounts at the end of the period is wrong WHY?Assets… Cash at Bank [A] 1 Jun Balance 10000 30 Jun Cash Payments 18000 30 Jun Cash Receipts 20000 30 Jun Balance 12000 30000 30000 1 Jul Balance 12000 Revenue… Sales [R] 30 Jun Cash at Bank 35000 30 Jun Balance 53000 30 Jun Debtors Control 18000 53000 53000 1 Jul Balance 53000 10.1 BALANCING VS. CLOSING LEDGERS
  • 12.
    © Michael Allison,Trinity Grammar School. Author’s permission required for external use Balance Sheet as at 30 June 2015 $ $  The difference is between the Balance Sheet and the Income Statement Income Statement for month ended 30 June 2015 $ $ What is the difference between “as at” and “for month ended”? 10.1 BALANCING VS. CLOSING LEDGERS
  • 13.
    © Michael Allison,Trinity Grammar School. Author’s permission required for external use Balance Sheet • Assumes the business will exist forever (as per the Going Concern Principle) • Represents a “snap shot” of the firm’s financial position at any point in time • For example, what is the firm’s financial position “as at 30 June 2015”? Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Balance Sheet as at 30 June 2015Balance Sheet as at 31 July 2015Balance Sheet as at 31 Aug 2015Balance Sheet as at 30 Sep 2015 Assets Liabilities Owner’s Equity 10.1 BALANCING VS. CLOSING LEDGERS
  • 14.
    © Michael Allison,Trinity Grammar School. Author’s permission required for external use Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Income Statement for June 2015 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Income Statement for July 2015 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Income Statement for Aug 2015 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Income Statement for Sep 2015 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Income Statement • Relates to one period only • Measures the firm’s financial performance • For example, what was the firm’s profit “during June 2015”? Revenue Expenses 10.1 BALANCING VS. CLOSING LEDGERS
  • 15.
    © Michael Allison,Trinity Grammar School. Author’s permission required for external use  The accounts in the Balance Sheet must be balanced as they will continue into next period Cash at Bank [A] 1 Jun Balance 10000 30 Jun Cash Payments 18000 30 Jun Cash Receipts 20000 30 Jun Balance 12000 30000 30000 1 Jul Balance 12000 Cash at Bank [A] 1 Jun Balance 10000 30 Jun Cash Payments 18000 30 Jun Cash Receipts 20000 30 Jun Balance 12000 30000 30000 1 Jul Balance 12000 Cash at Bank [A] 1 Jun Balance 10000 30 Jun Cash Payments 18000 30 Jun Cash Receipts 20000 30 Jun Balance 12000 30000 30000 1 Jul Balance 12000 Cash at Bank [A] 1 Jun Balance 10000 30 Jun Cash Payments 18000 30 Jun Cash Receipts 20000 30 Jun Balance 12000 30000 30000 1 Jul Balance 12000 Cash at Bank [A] 1 Jun Balance 10000 30 Jun Cash Payments 18000 30 Jun Cash Receipts 20000 30 Jun Balance 12000 30000 30000 1 Jul Balance 12000 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Balance Sheet as at 30 June 2015 The firm’s cash balance of $12,000 will continue into the future 10.1 BALANCING VS. CLOSING LEDGERS
  • 16.
    © Michael Allison,Trinity Grammar School. Author’s permission required for external use  The accounts in the Income Statement are relevant to one period only Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Sales [R] 30 Jun Cash at Bank 35000 30 Jun Balance 53000 30 Jun Debtors Control 18000 53000 53000 1 Jul Balance 53000 Income Statement for June 2015 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec The $53,000 of sales relates only to June The $53,000 of sales are NOT relevant to future periods… Sales [R] 30 Jun Cash at Bank 35000 30 Jun Balance 53000 30 Jun Debtors Control 18000 53000 53000 1 Jul Balance 53000 Sales [R] 30 Jun Cash at Bank 35000 30 Jun Balance 53000 30 Jun Debtors Control 18000 53000 53000 1 Jul Balance 53000 So there is no need to balance this ledger into future periods… The sales in June are NOT related to the sales in July Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec The sales in July are NOT related to the sales in August Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec The sales in August are NOT related to the sales in September Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 10.1 BALANCING VS. CLOSING LEDGERS
  • 17.
    © Michael Allison,Trinity Grammar School. Author’s permission required for external use  So every account must be either: Balanced The balance of the account at the end of the period is carried forward into next period. Vs Closed The balance of the account is reset to zero at the end of the period Assets Liabilities Owner’s Equity Cash at Bank [A] 1/6 Balance 10000 30/6 Cash Pay. 18000 30/6 Cash Rec. 20000 30/6 Balance 12000 30000 30000 1/7 Balance 12000 Sales [R] 30/6 Cash at Bank 35000 30/6 53000 30/6 Debtors Cont. 18000 53000 53000 Cash at Bank [A] 1/6 Balance 10000 30/6 Cash Pay. 18000 30/6 Cash Rec. 20000 30/6 Balance 12000 30000 30000 1/7 Balance 12000 Cash at Bank [A] 1/6 Balance 10000 30/6 Cash Pay. 18000 30/6 Cash Rec. 20000 30/6 Balance 12000 30000 30000 1/7 Balance 12000 Cash at Bank [A] 1/6 Balance 10000 30/6 Cash Pay. 18000 30/6 Cash Rec. 20000 30/6 Balance 12000 30000 30000 1/7 Balance 12000 Cash at Bank [A] 1/6 Balance 10000 30/6 Cash Pay. 18000 30/6 Cash Rec. 20000 30/6 Balance 12000 30000 30000 1/7 Balance 12000 Sales [R] 30/6 Cash at Bank 35000 30/6 53000 30/6 Debtors Cont. 18000 53000 53000 Sales [R] 30/6 Cash at Bank 35000 30/6 53000 30/6 Debtors Cont. 18000 53000 53000 Sales [R] 30/6 Cash at Bank 35000 30/6 53000 30/6 Debtors Cont. 18000 53000 53000 Revenue Expenses Drawings 10.1 BALANCING VS. CLOSING LEDGERS
  • 18.
    © Michael Allison,Trinity Grammar School. Author’s permission required for external use  The difference between balancing and closing… June July Cash at Bank [A] 1/6 Balance 10000 30/6 Cash Pay. 18000 30/6 Cash Rec. 20000 30/6 Balance 12000 30000 30000 1/7 Balance 12000 Sales [R] 30/6 Cash at Bank 35000 30/6 53000 30/6 Debtors Cont. 18000 53000 53000 Balancing Closing Cash at Bank [A] 1/7 Balance 12000 Sales [R] 30/6 Cash at Bank 35000 30/6 53000 30/6 Debtors Cont. 18000 53000 53000 10.1 BALANCING VS. CLOSING LEDGERS
  • 19.
    © Michael Allison,Trinity Grammar School. Author’s permission required for external use TASK In-class Homework SQ1 X SQ2 X