Financial Accounting Week 4 - On demand Once transactions for a period have been recorded, you must find the balance on the ledger accounts. This is done by ... 1. Total both sides of the T account and find the larger total 2. Put the larger total in the total box on both sides 3. Find the balancing figure: insert a balancing figure to the side of the T account that does not currently add up to the amount in the total box. Call this the balance carried forward (c/f) or balance carried down (c/d) 4. Carry this number down diagonally and call it the balance carried forward (b/f) or balance brought down (b/d) Dr Date (AUG 2013) Details BANK A/C £ Date (AUG 2013) Details 1 CAPITAL 20000 24 RENT RECEIVED 1800 28 LOAN 9000 31 BALANCE C/D 1100 31900 3 PURCHASES 18000 17 OFFICE EXPENSES 2400 19 MOTOR VAN 8000 27 WAGES 2500 30 DRAWINGS 1000 01-Sep-13 BALANCE B/D 1100 This is what a T account should look like once balanced. Debit Balances Cr £ 31900 - Cash account - Purchases account - Sales returns account - Fixed assets account - Expenses account - Drawings account - Debtor's account (usually individual balances are added up and the total is entered in trial balance as debtors) Credit Balances - Sales accounts - Purchase returns account - Income accounts - Capital account - Loan account - Creditor's account (usually individual balances are added up and the total is entered in trial balance as creditors)
Bank account - the bank account can be EITHER a debit or a credit - Debit balance means business has money in the account, so it's a current asset - Credit balance means account is overdrawn and therefore is a current liability - Bank statements are written from the pov of the bank o Money in your account is credit (bank owes you) o Overdrawn account is debit (you owe bank) Extracting a trial balance - A trial balance is a list of all debit and credit balances of every account forming the ledger - The trial balance should balance to DEBITS = CREDITS - Eg: If balance brought forwards is on the debit side of the T account, then it goes in the debit column of the TB, etc Trial Balance EXAMPLE Debit Credit £ £ Capital Account 10,000 Cash 9000 Rent 1000 Sales 2500 Trade Receivables 2500 12,500 12,500 Both columns total up to 12,500 pounds so the trial balance balances - At the end of each accounting period, the balance on each T account is calculated - Where debits are greater than credits, then there is a debit balance on the T account - Where credits are greater than debits, then there is a credit balance on the T account - ALL debit and credit balances are listed in the trial balances - The total of the debt balances must equal the total of the credit balances - if not, then there is