Balancing an Account

Some accounts are called “T” accounts because they are shaped like a capital “T”

Money received by the household (or business) is entered on the left hand side or “debit” side of the account

Money paid by the household (or business) is entered on the right-hand side or “credit” side of the account

At the end of each week/month, the household (or business) needs to balance the account to see how much money it has left (or how much money it owes) In the previous example, the household had earned €850 (wages and lotto win) and spent €165 (groceries and petrol)

Which side is bigger?

Which side is bigger? CR 165 DR 850

To balance the account we firstly need to make both sides equal What can we add to €165 to make it equal to €850? The answer (850 – 165 = 685) is called the balance

DR CR 850 165 + 685 = 850

To make both sides equal, we add the balance to the smaller side (in this case, the credit side)

Next, total both sides up Next, total both sides up. Both sides should now be equal, as they both contain €850. Be sure to total them both on the same line and then double underline the totals in red pen

Finally, bring the balance down below the total on the larger side (in this case, the debit side). This shows how much money is left in the account at the beginning of the next week or month

Summary Total both sides on a sheet of paper Take the smaller side from the bigger side and call the answer “balance” Enter the balance onto the smaller side Total both sides in the account, making sure the total is on the same line on both sides and is double-underlined with a red pen Bring the balance down below the total on the bigger side

Review Which side does money received by the household/business appear on? Which side does money paid by the business appear on? What is the name used to describe the difference between both sides? NOW – do some examples from your textbook