Balancing the accounts
Whenever you want to balance an account, the two sides are added, and if the totals of the two sides are unequal, the difference is placed on the side that has a smaller total. This will make both sides equal. The amount of the inserted difference is known as the account “balance”. In the data column it is written as Balance c / d (carried down). The later period is known as a balance offer (discounted). If the total on the credit side of the account is less, the balance will be inserted on the credit side with the words “By balance c / d.” This balance is known as the debit balance and after the account is closed it will be displayed on the debit side with the words “To balance the offer”. Similarly, if the total on the debit side of the account is less, the balance will be inserted on the debit side with the words “Balance c / d.” This balance is known as a credit balance and after the account is closed it will be displayed on the credit side with the words “Offer for balance”.
Personal accounts
It is worth refreshing your memory and remembering that personal accounts relate to individuals and business entities (firm, company, corporation, etc.) and the rule is: The recipient must be charged and the donor must be credited. Now, if on a particular date the company wants to know how much is ‘owed’ or ‘owed’ by a particular person to itself (company), then it must balance the account of the person in question. The debit balance according to the personal account means that the person is the debtor of the company, that is, the person owes an amount equal to the balance of the company or the amount, represented by the balance “owed” to the company by the person . Similarly, the credit balance according to the personal account means that the person is the creditor of the company, that is, the company owes an amount equal to the balance to the person or the amount represented by the balance “owed” by the company to person.
Real account
These are the accounts related to ownership or possession or rights. The rule is: “What goes in is charged and what goes out is credited.” Therefore, all income should be recorded on the debit side and outflows on the credit side. On any particular date, these accounts must have a “debit balance” representing the value of the item covered by the account. At the end of the year (generally) or at any other time when it is required to verify the financial situation of the company, these accounts are balanced. These balances are shown on the asset side of the balance sheet or balance sheet. These accounts have ‘debit balance’, which means the ‘book value’ or ‘discounted value’ or ‘going concern value’ of the company’s assets on that relevant date.
Nominal accounts
These are the accounts that show the different items of expenses and sources of income. At the end of the specified period (usually one year), these accounts are closed by transfer to the final accounts, that is, operating or profit and loss account.
Ledger need
General ledger maintenance is a must in all accounting systems. It is necessary as it is clear from its advantages:
(1) Transactions related to a particular person, item or item of expense or income are grouped into the corresponding account in one place.
(2) When each account balances periodically, it reflects the net position of that account. For example, how much is owed to a customer or how much should be paid to a supplier or what is the value of the total purchases or what has been the expenditure on salaries? Such information is available when balancing the general ledger accounts.
(3) The ledger is the springboard to prepare the Trial Balance, which tests the arithmetic accuracy of the ledgers.
(4) Since the journal entries are referenced in the general ledger, the possibility of errors or disqualifications is minimized.
(5) The general ledger is the destination for all entries made in the journal or sub-journals.
(6) The general ledger is the “storeroom” for all the information that is subsequently used to prepare the final accounts and financial statements.
Opening entry and its publication. In the case of an existing business, we are required to make a journal entry (based on the Balance Sheet prepared at the end of the previous year) to incorporate all assets and liabilities into the new books – this is known as Opening. entry.
