After Ledger Posting is completed,the various accounts are balanced,in order to know the exact position of a particular kind of transaction. For example ,To know total money spend on travelling ,knowing the balance of ‘travelling account‘ is suffice. After arriving the balance of a particular period it can be arranged in the trail balance for the preparation of Profit & Loss account and balance sheet.
Procedure of Account balancing
- Find the difference between the debit total and the credit total of the account.
- Put difference on the smaller side so that the two sides become equal.Then put the totals on both sides.Before writing the total draw a single line and after the total draw double lines. The two totals must be placed in two columns opposite each other.
- When difference is put on the smaller side, write “Balance carried down” in the particulars column, against the balance amount.This is the balance of the account on the particular day.
- On the next day the balance is brought down on the opposite side,and the account is continued with this balance.
Real Account Balance:
Real accounts relate to assets, when assets are purchased, the particular assets account debited, and when assets are sold or disposed off, the particular assets account is credited. So if an asset account has a balance it must be a debit balance. It indicates the value of asset in the possession of the business.
Personal account balance.
The debit balance of a personal account indicates debts owing by the person and credit balance indicates debts owing to the person concerned.For the business , the first is account receivable or asset while second is account payable.or liability. The debit balance of all personal accounts on a certain date put together will make ‘Sundry Debtors’ and the credit balance of all personal accounts ‘Sundry creditors‘. Sundry Debtors are asset and sundry Creditors are Liabilities. Where as Asset Accounts have debit balance liability accounts have Credit balance.