Normal balances and the T-account
≈ 38 minThe shape of a ledger account
A ledger account is drawn as a large letter T. The account name sits across the top, the debit side is on the left and the credit side is on the right. Every entry records four things: the date, the details (the name of the account on the other side of that transaction), the folio (where the entry came from), and the amount.
The details column is often misread. It does not describe the transaction in words. It names the other half of the double entry, so that anyone can trace the pair.
Normal balances
An account's normal balance is the side it is expected to end on, and it is simply the side that increases the account.
| Account type | Increases on | Normal balance |
|---|---|---|
| Assets, for example Bank, Equipment, Debtors control | Debit | Debit |
| Expenses, for example Wages, Rent expense | Debit | Debit |
| Liabilities, for example Loan, Creditors control | Credit | Credit |
| Owner's equity, for example Capital | Credit | Credit |
| Income, for example Current income | Credit | Credit |
Balancing an account
- Add both sides separately.
- Find the difference between the two totals.
- Write that difference on the smaller side as Balance c/d (carried down), which makes both sides total the same.
- Bring the same amount down on the opposite side on the first day of the next month as Balance b/d (brought down).
The balance b/d side tells you the nature of the balance. An asset ends with its balance b/d on the debit side.
Balancing the Bank account
Worked example. The Bank account of Kasi Kuts for March contains the following.
Debit side: 1 March, Capital, R40 000; 12 March, Current income, R8 400. Credit side: 3 March, Equipment, R6 500; 25 March, Rent expense, R4 200; 28 March, Drawings, R3 000.
Step 1. Debit total = 40 000 + 8 400 = R48 400. Credit total = 6 500 + 4 200 + 3 000 = R13 700.
Step 2. Difference = 48 400 - 13 700 = R34 700.
Step 3. The credit side is smaller, so Balance c/d R34 700 is written on 31 March on the credit side. Both sides now total R48 400.
Step 4. On 1 April, Balance b/d R34 700 appears on the debit side.
A debit balance is exactly what an asset should show, and it says the business had R34 700 in the bank at the end of March.
Core checkpoint: the balance is always written on the smaller side to close the account, then brought down on the larger side. The side it is brought down on tells you what kind of balance it is.
The Bank account of Kasi Kuts shows debits of R40 000 and R8 400, and credits of R6 500, R4 200 and R3 000. What is the balance of the account at the end of March, in rand?
On which side does the Creditors control account normally show its balance, and why?