It’s All About (The) Balancing Of Account [Notes with PDF]
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. Â
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.
You can also read:
- 10 Steps of Accounting Cycle
- 3 Golden Rules of Accounting
- 6 Accounting Principles
- Top 10 Funny Accounting Jokes
Key takeaways
- Add up both sides of the account.
- Find the difference between the two totals.
- Write the difference on the smaller side as “balance c/d” (carried down) so both sides are equal.
- Total both sides, which should now match.
- Bring the balance down on the opposite side as “balance b/d” to start the next period.
If the debit side is larger the account has a debit balance. If the credit side is larger it has a credit balance.
Quick check
1. A Cash account has debits totalling 15,000 and credits totalling 9,000. What is the balance and where is it written?
The difference is 6,000, a debit balance. “Balance c/d 6,000” is written on the credit (smaller) side, and “Balance b/d 6,000” is brought down on the debit side.
2. What side does a liability account normally have its balance on?
The credit side.
Frequently asked questions
What do balance c/d and balance b/d mean?
Balance carried down (c/d) closes the account for the period. Balance brought down (b/d) is the same amount re-entered on the opposite side as the opening balance of the next period.
Why is the balance written on the smaller side?
Writing the difference on the smaller side makes the two sides equal, so the account can be totalled and ruled off.
Do revenue and expense accounts carry a balance forward?
No. They are closed to the income statement at the end of the period. Asset, liability and equity account balances carry forward.
Related: Ledger · Trial balance · Debit · Credit
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