How to balance a ledger account

Ledger

What you need

• A ledger account in T-format in which all transactions for the period have been recorded.
• The ability to add up the debit side and the credit side separately and correctly.
• Knowledge of the last day of the accounting period and the first day of the next period.
• An understanding that a debit balance is an asset or expense, while a credit balance is a liability, capital, or revenue.

Step by step

1. 1

   Check and total each side

   Take the ledger account to be balanced and make sure every transaction for the period is recorded. Our example is the Cash Account of Perniagaan Setia for January 2024. The debit side shows 1 Jan Capital RM5,000 and 10 Jan Sales RM1,500, while the credit side shows 5 Jan Purchases RM2,000 and 20 Jan Rent RM800. Add each side separately: the debit total is RM5,000 + RM1,500 = RM6,500 and the credit total is RM2,000 + RM800 = RM2,800. Do this working in the margin first and do not write the totals in the account yet.

2. 2

   Identify the larger side and work out the balance

   Compare the two totals. The debit side RM6,500 is larger than the credit side RM2,800. Subtract the smaller total from the larger total to get the balance: RM6,500 − RM2,800 = RM3,700. This RM3,700 is the balance of the account that must be entered.

3. 3

   Enter the balance c/d on the smaller side

   The balance carried down (baki h/b) is always written on the smaller side so that both sides become equal. Because the credit side is smaller, write on the credit side: 31 Jan Balance c/d RM3,700. The date is the last day of the accounting period, 31 January 2024.

4. 4

   Total both sides on the same line

   After the balance c/d is entered, both sides now add up to the same figure. The debit side is RM6,500 while the credit side is RM2,000 + RM800 + RM3,700 = RM6,500. Write the total RM6,500 on the same line on both sides, then draw a double line under the totals to show the account has been closed for the period.

5. 5

   Bring down the balance b/d on the opposite side

   The balance must continue into the next period. Enter the balance brought down (baki b/b) on the side opposite the balance c/d. Since the balance c/d is on the credit side, the balance b/d is written on the debit side: 1 Feb Balance b/d RM3,700, dated the first day of the new period, 1 February 2024.

6. 6

   Interpret the type and meaning of the balance

   The balance b/d sits on the debit side, so the Cash Account has a debit balance of RM3,700. This means Perniagaan Setia holds RM3,700 in cash at the start of February, which is an asset. This debit balance is then taken to the debit column of the Trial Balance.

7. 7

   Recheck for accuracy

   Before moving on, confirm that both side totals are equal, that the balance c/d is dated the end of the period and the balance b/d the start of the new period, and that the balance b/d is on the side opposite the balance c/d. If the two sides are not equal, recheck the additions and the original transaction entries until the account balances.

Second example

Now look at the account of the creditor Perniagaan Jaya (a supplier) in the books of Kedai Harmoni. The credit side records credit purchases of RM4,000 on 3 March, while the debit side records a cash payment of RM2,500 on 18 March. Here the credit side is larger, so the balance c/d of RM1,500 is entered on the debit side dated 31 March, both sides total RM4,000, and the balance b/d of RM1,500 is brought down on the credit side dated 1 April. This credit balance shows that Kedai Harmoni still owes RM1,500 to Perniagaan Jaya, a liability that appears in the credit column of the Trial Balance.

If an account has equal debit and credit totals, for example a debtor who has settled all amounts owing, the account has no balance. Write the equal total on both sides with a double line, with no balance c/d or balance b/d, because the account is fully closed.

Common mistakes

Related chapter: Ledger →

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