Balancing a General Ledger account

The question a balance answers

Once a month's postings are in, an account such as Bank has amounts on both sides. Neither side on its own answers the question the owner actually asks: how much is left?

Balancing answers it. You work out how much the bigger side beats the smaller side by, and carry that difference forward as the account's opening position for the next month.

The procedure

1. Add each side separately, without writing anything down yet.
2. Find the difference between the two sides.
3. Write that difference on the smaller side, dated the last day of the month, described as Balance with the folio c/d (carried down). This makes both sides add to the same amount.
4. Write the identical total under both sides, on the same line.
5. On the first day of the next month, write the same figure on the bigger side as Balance b/d (brought down).

Step 3 is where students go wrong most often. The balance c/d goes on the side with less on it, precisely because that is the side that needs topping up to make the two sides equal. The balance b/d then reappears on the side that was genuinely bigger, which is the side that tells you what the account really holds.

Reading the answer

A debit balance on Bank means the business has money. Assets have debit balances, and that is what "normal balance" means: the side an account usually sits on.

A credit balance on Bank means the business paid out more than it had. The bank has lent the business the difference, which is an overdraft. The account is not broken and the entry is not a mistake. Bank has simply stopped being an asset and become a liability, money owed to the bank, and it will be shown as one.

Not every account is balanced every month. Nominal accounts such as Wages or Current income accumulate for the whole year and are dealt with at year end, so in Grade 10 you will mostly balance Balance Sheet accounts: Bank, Petty cash, Equipment, Capital, Debtors control.

Worked example. Mokoena Cycle Repairs opened April with R34 860 in the bank, carried down from March. During April the CRJ totalled R41 200 and the CPJ totalled R52 640.

Add the debit side: 34 860 + 41 200 = R76 060. The credit side is R52 640.

The debit side is larger, so the difference goes on the credit side: 76 060 - 52 640 = R23 420, written as 30 Apr, Balance, c/d, 23 420 on the credit side. Both sides now total R76 060 and those totals are written on the same line.

On 1 May, Balance b/d R23 420 appears on the debit side. The business has R23 420 in the bank going into May, which is what the bank statement should show.

Sanity check without any of the mechanics: the business started with 34 860, took in 41 200, and paid out 52 640. That is 34 860 + 41 200 - 52 640 = 23 420. The balancing procedure and plain arithmetic must always agree, and if they do not, you have put the balance on the wrong side.

Core checkpoint: you can balance an account correctly, put c/d on the smaller side and b/d on the larger side of the following period, check your answer against plain arithmetic, and explain what a credit balance on the Bank account means for the business.