In this article, we will learn in-depth about the balancing of accounts, including its definition, procedures, and formula for determining the balance of an account, and much more.
What is Balancing of Account?
The balancing of the account is the process of balancing the debit and the credit side of the account at a given time.
That is if the sum of the debit and the credit side of an account is unbalanced, the difference between the small amounts excluding the larger amount is called the balance of the account.
For example, let me say that the sum of the debit side of Mr. Peter’s account is $1000. The sum of the credit side of his account, on the other hand, is $400. The balance of Peter’s account is ($1000-$400) = $600. This $600 is shown on the lower side, i.e. towards the credit side of the account.
In other words, the difference between the amounts on both sides of the account is called the balance of the account.
There are two types of balance of accounts. Like the debit balance and the credit balance.
You can also read Accrual vs Cash Basis Accounting
Debit Balance
If the sum of the debit side of an account is greater than the sum of the credit side, this difference is called a debit balance.
Suppose, the sum of the debit side of Mr. Jonson’s account is $1000. And the sum on the credit side is $ 600. So, the debit balance of Mr. Jonson’s account is (1000-600) = $400. This debit balance will have to be shown as Balance c/d on the lower side of the account i.e. credit side.
Credit Balance
If the sum of the credit side of an account is greater than the sum of the debit side of an account, this difference is called credit balance.
Suppose, the sum of the credit side of Mr. Jonson’s account is $500. And the sum of the credit side is $200. So the credit balance of his account is (500 – 200) = $300. This credit balance will have to be shown as Balance c/d on the lower side of the account i.e. debit side.
Procedure for Determining the Balance of the Account
The following procedure may be followed to determine the balance of the account.
The balance of the account is calculated by calculating the difference between the amounts of both sides of the account.
The Balance c/d has to write down to equal to both sides of the account, where the amount is less.
If the sum of the two sides is equal, two parallel lines must be submerged under the total of the two sides to close the account.
The date on which the Balance c/d was written on the date on which the account was closed was due to be reversed on the date on which the account was opened.
Formula for Determining the Balance of the Account
Debit Balance = Total amount of the debit side –Total amount of the credit side.
Credit Balance = Total amount of the credit side –Total amount of the debit side.
Zero Balance = Total amount of the debit side = Total amount of the credit side.
From the above discussion, it can be said that, in the case of accounting, the balance between the debit and the credit side of the account is determined by the balancing of the account. As a result, the actual financial situation of the organization is known.
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