Balancing a ledger account and Trial balances Flashcards
Why do we balance off a ledger account?
The owner may want to know some details about the performance of a business within a period of time. They may want to know how much sales revenue has been earned, how much the business owe to payables and how much cash they have left in the bank.
What is the procedure for balancing a ledger account?
Step 1: Total up each side to find the highest valued side. Step 2: Put the highest total to the bottom of both sides. Step 3: In the lower valued side, insert the ‘balance carried down’ (Bal c/d) to make it add up to the total. Step 4: In the opposite side below the total, bring the same balance as the balance carried down and refer to as ‘balance brought down’ (Bal b/d).
What is a trial balance?
This is a list that shows the balance brought down on each ledger account. It is also a checkpoint to ensure every debit has an equal and opposite credit entry, therefore the totals of the trial balance columns should balance.
Why must you be careful when completing a trial balance?
It does not confirm the account you have debited/credited is correct, therefore you must ensure that every ledger account is correct and correctly put into the correct column before completing the trial balance.
Why is ‘DEAD CLIC’ important when completing a trial balance?
This mnemonic helps you identify whether accounts should be debit or credit balances.
Out of the following, which ones go in the debit side and which ones go into the credit side: Assets, Liabilities, Income and Expenses?
Assets and Expenses go into the debit side (Debits increase ‘EA’) whereas Liabilities and Income go into the credit side (Credits increase ‘LI’).
What are some examples of Assets?
Land and buildings, Machinery, Fixtures and fittings, Motor vehicles, Computer equipment, Inventory, Receivables, Cash at bank, Cash in hand, VAT receivable.
What are some examples of Liabilities?
Payables, Loan, Bank overdraft, VAT payable.
What are some examples of Income?
Sales revenue (Sales), Rental income, Commission received, Discounts received, Interest received.
What are some examples of Expenses?
Purchases, Interest paid, Rent and rates, Telephone, Discounts allowed, Electricity, Travel, Stationary, Repairs and renewals, Motor expenses, Wages and salaries.
