1. Content and design ©2012 Osborne Books Limited DOUBLE-ENTRY ACCOUNTS BALANCING

2. What this presentation covers Content and design ©2012 Osborne Books Limited What is the balance of an account? Why do double-entry accounts need to be balanced? When do double-entry accounts need to be balanced? How do you balance double-entry accounts?

3. Content and design ©2012 Osborne Books Limited What are account balances and why are they needed? The balance of an account is the difference between the totals of debits and credits Examples of account balances include: These balances provide useful information for owners and managers - amounts owed by trade receivables and owed to trade payables - amounts spent on a specific expense over a period of time - purchases and sales over a period of time

4. Content and design ©2012 Osborne Books Limited The account needs to be balanced to show how much M Owen owes at the end of June When are double-entry accounts balanced? This is the account of a trade receivable, M Owen, who has been sold goods on credit: Double-entry accounts are balanced regularly, often at the end of the month

5. Content and design ©2012 Osborne Books Limited Dr datedetails£datedetails£ M Owen 5,000 Add up both money columns to work out totals for the debits and credits Cr 17 June 24 June Sales 1,000 2,000 Sales returns Bank 15 June 28 June 1,000 4,000 Step 1 – total the debits and the credits Make a separate note of the totals – do NOT write anything in the account … yet 8,000 5,000 Balance b/d 1 June ‘ Balance b/d’ of £5,000 on 1 st June on the debit side is the balance of the account from the previous month

6. Content and design ©2012 Osborne Books Limited Dr datedetails£datedetails£ M Owen 5,000 The difference between the totals: £8,000 minus £5,000 Cr 17 June 24 June Sales 1,000 2,000 Sales returns Bank 15 June 28 June 1,000 4,000 Step 2 – work out the difference between the higher total and the lower total This £3,000 difference is the balance of the account that M Owen owes at the end of June £8,000= £3,000 Balance b/d minus £5,000 = £3,000 1 June

7. Content and design ©2012 Osborne Books Limited Dr datedetails£datedetails£ M Owen 5,000 Write the date and the description ‘Balance c/d’ on the side with the lower total, on the next line Cr 17 June 24 June Sales 1,000 2,000 Sales returns Bank 15 June 28 June 1,000 4,000 Step 3 – enter the balance in the account Then enter the balance of £3,000 Balance b/d Balance c/d30 June3,000 1 June

8. Content and design ©2012 Osborne Books Limited Dr datedetails£datedetails£ M Owen 5,000 Underline the last entries on the same line and enter the totals of both columns on the next line down and underline Cr 17 June 24 June Sales 1,000 2,000 Sales returns Bank 15 June 28 June 1,000 4,000 Step 4 – enter summary totals in the account Balance b/d Balance c/d30 June3,000 1 June These summary totals will always be the same and underlined in bold (or double underlined). 8,000

9. Content and design ©2012 Osborne Books Limited Dr datedetails£datedetails£ M Owen 5,000 You have entered £3,000 (Balance c/d) on the credit side, but you also need a debit entry Cr 17 June 24 June Sales 1,000 2,000 Sales returns Bank 15 June 28 June 1,000 4,000 Step 5 – bring the balance down Balance b/d Balance c/d30 June 3,000 8,000 Bring down the balance of £3,000 on the opposite (debit) side as ‘Balance b/d’ – but using the next day’s date 1 June Balance b/d 1 July3,000

10. Content and design ©2012 Osborne Books Limited Dr datedetails£datedetails£ M Owen 5,000 Cr 17 June 24 June Sales 1,000 2,000 Sales returns Bank 15 June 28 June 1,000 4,000 Summary so far Balance b/d Balance c/d30 June3,000 1 June 8,000 Add both columns, work out the difference, and write in the date, ‘Balance c/d’, and balancing entry of £3,000 Finally enter the balancing figure on the opposite side with the next day’s date and ‘Balance b/d’ 1 JulyBalance b/d3,000 Total both columns and write in £8,000, remembering to draw the lines

11. Content and design ©2012 Osborne Books Limited Dr datedetails£datedetails£ J Green 7,000 Cr 15 June 18 June Sales 2,000 1,000 Bank28 June6,000 Further example – balancing another trade receivable account Balance b/d Balance c/d30 June4,000 10,000 1 June Balance b/d 1 July4,000 Remember – add the totals, enter the difference on the side with the lower total, add summary totals on the same line, then bring down the balance on the opposite side. 10,000

12. Content and design ©2012 Osborne Books Limited Dr datedetails£datedetails£ Rent Paid 9,000 An expense account is a running total of a particular expense during the financial year Cr 20 MarchBank1,000 Balance c/d31 March 10,000 Balancing an expense account Balance b/d 10,000 An expense account is balanced to show how much has been spent to date 1 March Balance b/d 1 April 10,000

13. Content and design ©2012 Osborne Books Limited Dr datedetails£datedetails£ R Gupta 4,000 Cr 18 JunePurchases returns1,000 Balance b/d 1 June 4,000 Balancing a trade payable account which has a credit balance Bank 6,000 The balancing process here is exactly the same, but the balancing figure goes on the debit side and the balance is brought down on the credit side 15 June Balance b/d 1 July 1,000 6,000 30 JuneBalance c/d 1,000 28 JunePurchases 2,000

14. Content and design ©2012 Osborne Books Limited Dr datedetails£datedetails£ R James 10,000 If the total of the entries on both sides of the account is the same, it has a nil balance Cr 18 JuneSales1,000 Sales returns Bank 20 June 28 June 1,000 Accounts with a nil balance Balance b/d 11,000 If the total is the same, write in the total on both sides and underline the two identical figures 1 June 10,000 Here R James has settled his account and there is no balance to carry down.

15. Content and design ©2012 Osborne Books Limited Dr datedetails£datedetails£ M Owen 5,000 Cr 17 June 24 June Sales 1,000 2,000 Sales returns Bank 15 June 28 June 1,000 4,000 Recap – remember how to balance double-entry accounts Balance b/d Balance c/d30 June3,000 1 June 8,000 1 JulyBalance b/d3,000 Total the debits and credits and work out the difference between the totals: £8,000 - £5,000 = £3,000 Enter the difference on the side of the lower total as ‘Balance c/d’ Enter totals on both sides and underline Bring down the account balance as ‘Balance b/d’ on the next day’s date

16. Content and design ©2012 Osborne Books Limited Summary – balancing double-entry accounts Account balances provide useful information to business owners and managers, for example: - amounts owed by trade receivables and owed to trade payables This will help owners and managers to work out profit and to monitor and control expenses - expenses paid over a period of time - sales and purchases over a period of time

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