Balancing accounts

1. Balancing off accountsBalancing off accountsBalancing off accountsBalancing off accounts
DBS3024 BUSINESS TRANSACTIONDBS3024 BUSINESS TRANSACTION
by
Stephen Ong
Visiting Fellow, Birmingham City
University Business School
Visiting Professor, Shenzhen
University

2. Today’s OverviewToday’s Overview

3. 1 - 3
Learning objectivesLearning objectives
After this lecture, you should be able to:After this lecture, you should be able to:
 Close-off accounts when appropriateClose-off accounts when appropriate
 Balance-off accounts at the end of aBalance-off accounts at the end of a
period and bring down the openingperiod and bring down the opening
balance to the next periodbalance to the next period
 Distinguish between a debit balanceDistinguish between a debit balance
and a credit balanceand a credit balance
 Describe and prepare accounts inDescribe and prepare accounts in
three-column formatthree-column format

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Why balance accounts?Why balance accounts?
T-accountsT-accounts need to be balancedneed to be balanced
at various times during the year:at various times during the year:
 At theAt the end of each accountingend of each accounting
periodperiod to summarise theto summarise the
situation.situation.
 Once a yearOnce a year to calculate profit.to calculate profit.
 To seeTo see what is happeningwhat is happening withwith
respect to a particular account.respect to a particular account.

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11
Debtors accountDebtors account

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How to balance whereHow to balance where debtorsdebtors
have paid their accountshave paid their accounts
This is the account of K. Tandy inThis is the account of K. Tandy in
August 2012:August 2012:

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How to balance where debtors haveHow to balance where debtors have
paid their accounts (Continued)paid their accounts (Continued)
This is the balanced account:This is the balanced account:

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How to balance whereHow to balance where
debtors still owe for goodsdebtors still owe for goods
This is the account of D. Knight inThis is the account of D. Knight in
August 2012:August 2012:

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How to balanceHow to balance where debtorswhere debtors
still owe for goodsstill owe for goods (Continued)(Continued)
To balance, we will use a five-stepTo balance, we will use a five-step
approach.approach.
1.1. Add up both sides to find out theirAdd up both sides to find out their
totalstotals. Note: do not write anything in. Note: do not write anything in
the account at this stage.the account at this stage.
2.2. Deduct the smaller total from the largerDeduct the smaller total from the larger
total tototal to find the balancefind the balance..
3.3. Now enter theNow enter the balance on the side withbalance on the side with
the smallest totalthe smallest total. This now means the. This now means the
totals will be equal.totals will be equal.

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How to balanceHow to balance where debtorswhere debtors
still owe for goodsstill owe for goods (Continued)(Continued)
4.4. EnterEnter totals leveltotals level with eachwith each
other.other.
5.5. Now enter the balance onNow enter the balance on
the line below the totals onthe line below the totals on
thethe oppositeopposite sideside to theto the
balance shown above thebalance shown above the
totals.totals.

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How to balance whereHow to balance where debtorsdebtors
still owe for goodsstill owe for goods (Continued)(Continued)
This is the balanced account:This is the balanced account:

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22
Creditors accountCreditors account

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Balancing aBalancing a creditor’s accountcreditor’s account
This is the account of E. Williams inThis is the account of E. Williams in
August 2012:August 2012:

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Balancing aBalancing a creditor’screditor’s
accountaccount (Continued)(Continued)
This is the balanced account:This is the balanced account:

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33
Three Column accountsThree Column accounts

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Three-column accountsThree-column accounts
 Three-column accountsThree-column accounts do not use thedo not use the
format of the T-account.format of the T-account.
 There are three columns and theThere are three columns and the thirdthird
column provides a running totalcolumn provides a running total of theof the
balance.balance.
 Three-column accounts are veryThree-column accounts are very
similar to the bank statementsimilar to the bank statement you willyou will
receive for a current account.receive for a current account.

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An example of a three-columnAn example of a three-column
accountaccount

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Learning outcomesLearning outcomes
You should have now learned:You should have now learned:
1.1. How toHow to close off accountsclose off accounts upon whichupon which
there is no balance outstandingthere is no balance outstanding
2.2. How to balance-off accounts at theHow to balance-off accounts at the endend
of a periodof a period
3.3. How toHow to bring down the openingbring down the opening
balancebalance on an account at the start of aon an account at the start of a
new periodnew period

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Learning outcomes (Continued)Learning outcomes (Continued)
4.4. That when an opening balance on anThat when an opening balance on an
account is a debit, that account is said toaccount is a debit, that account is said to
have ahave a debit balancedebit balance. It also has a debit. It also has a debit
balance during a period whenever the totalbalance during a period whenever the total
of the debit side exceeds the total of theof the debit side exceeds the total of the
credit sidecredit side
5.5. That when an opening balance on anThat when an opening balance on an
account is a credit, that account is said toaccount is a credit, that account is said to
have ahave a credit balancecredit balance. It also has a credit. It also has a credit
balance during a period whenever the totalbalance during a period whenever the total
of the credit side exceeds the total of theof the credit side exceeds the total of the
debit sidedebit side

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Learning outcomes (Continued)Learning outcomes (Continued)
6.6. ThatThat ‘debtors’‘debtors’ are people or organisationsare people or organisations
whose account in your accounting bookswhose account in your accounting books
has ahas a greater value on the debit sidegreater value on the debit side. They. They
owe you money. They are included in theowe you money. They are included in the
amount shown foramount shown for accounts receivableaccounts receivable inin
the statement of financial positionthe statement of financial position
7.7. ThatThat ‘creditors’‘creditors’ are people or organisationsare people or organisations
whose account in your accounting bookswhose account in your accounting books
has ahas a greater value on the credit sidegreater value on the credit side. You. You
owe them money. They are included in theowe them money. They are included in the
amount shown foramount shown for accounts payableaccounts payable in thein the
statement of financial positionstatement of financial position

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Learning outcomes (Continued)Learning outcomes (Continued)
8.8. That T-account and three-columnThat T-account and three-column
accounts disclose theaccounts disclose the same balancesame balance,,
given identical information aboutgiven identical information about
transactionstransactions
9.9. That three-column accounts updateThat three-column accounts update
and show the balance on the accountand show the balance on the account
afterafter every transactionevery transaction
10.10.How to prepare three-columnHow to prepare three-column
accountsaccounts

22. Resources : Core ReadingResources : Core Reading
 Wood, Frank and Robinson, SheilaWood, Frank and Robinson, Sheila
(2009)(2009) Bookkeeping and AccountsBookkeeping and Accounts ,7,7thth
Edition, Pearson/ FT Prentice HallEdition, Pearson/ FT Prentice Hall
 Wood, Frank and Sangster, Alan
(2012) Business Accounting ,12th
Edition, Pearson/ FT Prentice Hall
 Fortes, Hilary (2011) Accounting
Simplified , Pearson/ FT Prentice Hall

23. QUESTIONS?QUESTIONS?