6 BALANCING AND CLOSING A LEDGER ACCOUNT

6.1 INTRODUCTION

When all transactions for an accounting period have been recorded, it is necessary to establish the balance on each general ledger account. In many computerised accounting systems, this is done automatically, along with generation of a trial balance. However, it is important to understand the procedure involved and what happens to the general ledger account balances after the trial balance has been generated.

The procedure to strike a general ledger account balance is as follows:

  1. Total both sides of the T-account and find the larger total.
  2. Insert the larger total in the total box on both the debit and credit side.
  3. Insert a balancing figure to the side of the T-account which does not currently add up to the amount in the total box. Call this balancing figure 'balance c/f (carried forward) or 'balance c/d' (carried down).
  4. Carry the balance down diagonally and call it 'balance b/f (brought forward) or 'balance b/d' (brought down).
EXAMPLE

Balance the following general ledger account:

Cash at bank$
Capital10,000
Sales250
Purchases200
Rent150
Electricity75
Cash at bank$
Capital10,000
Sales250
Purchases200
Rent150
Electricity75
Balance c/f9,825
10,25010,250
Balance b/f9,825

FAT: RECORDING FINANCIAL TRANSACTIONS

ACTIVITY 3

Here is a ledger account from the general ledger of a business.

CapitalSalesCash at bank$
10,000
Purchases300Rent
ElectricityNew van$1,000
2,500
750
15,000

Required:
(a) What is the balance brought down on this ledger account?
(b) Is it a debit or a credit balance brought down?

ACTIVITY 4

For a suggested answer, see the 'Answers' section at the end of the book

Here is a cash at cash at bank general ledger account at 30 June.

Cash at bank$ 4,200
1 June
Balance b/d		3 June
Purchases
1,600
Telephone3 June
Sales
3,700
8 June
expenses
850		10 June
Sales
6,100
15 June
Equipment
2,000		15 June
Sales
4,900
28 June
Purchases
3,700		26 June
Sales
8,800
29 June
Salaries payable
14,200

Required:
(a) Balance-off the account at 30 June.
(b) What would a credit balance on the Bank T-account signify?
For a suggested answer, see the 'Answers' section at the end of the book.

Although this will be covered in more detail later in this publication, it is worth noting how the general ledger account balances from the trial balance will be used.

6.2 INCOME AND EXPENSE LEDGER ACCOUNTS

At the end of an accounting period, all income and expense account balances are closed-off and used to prepare the statement of profit or loss.
Do not show a balance c/f or balance bif but instead put the balancing figure on the smallest side and label it 'profit or loss'.
The general ledger account balance will then be nil and it is then ready to use again in

DOUBLE-ENTRY BOOKKEEPING: CHAPTER 4

6.3 ASSET, LIABILITY AND CAPITAL LEDGER ACCOUNTS

At the end of an accounting period, all asset, liability and capital account balances will be carried forward as the opening balances at the start of the next accounting period.
Those balances will also be classified and arranged to prepare the statement of financial position.
Assets/liabilities at the end of a period = Assets/liabilities at start of the next period, e.g. the cash at bank ledger account balance at the end of one day will be the cash at bank ledger account balance at the