Balancing Accounts and Trial Balance


Balances in Accounts
  • Assets and Expenses will always have a Debit balance
  • Liabilities, Income, and Capital will always have a Credit balance


Example:

Transactions
  • Jan 1 - Started Business investing £15,000 Cash
    1. Increase Asset - Debit Cash at Hand
    2. Increase Capital - Credit Capital
  • Jan 2 - Transferred £10,000 Cash into a Bank account
    1. Decrease Asset - Credit Cash at Hand
    2. Increase Asset - Debit Cash at Bank
  • Jan 4 - Bought a Motor Vehicle £2,000 paying by Cheque
    1. Decrease Asset - Credit Cash at Bank
    2. Increase Asset - Debit Motor Vehicles
  • Jan 6 - Bought Goods on Credit from Black £600 and White £1,300
    1. Increase Asset - Debit Purchases
    2. Increase Liability - Credit Black
  • Jan 10 - Cash Sale of £325
    1. Increase Asset - Debit Cash at Hand
    2. Increase Income - Credit Sales
  • Jan 14 - Returned Goods to Black £50
    1. Decrease Liability - Debit Black
    2. Decrease Asset - Credit Return Outwards
  • Jan 15 - Sold Goods on Credit to Blue £840
    1. Increase Asset - Debit Blue
    2. Increase Income - Credit Sales
  • Jan 20 - Bought Fixtures £300 by Cash
    1. Decrease Asset - Credit Cash at Hand
    2. Increase Asset - Debit Fixtures
  • Jan 22 - Paid Electricity £500 by Cheque
    1. Decrease Asset - Credit Cash at Bank
    2. Increase Expense - Debit Electricity
  • Jan 25 - Blue Returned Goods £100 to the Business
    1. Increase Asset - Debit Return Inwards
    2. Decrease Asset - Credit Blue
  • Jan 27 - Paid Rates £45 Cash
    1. Decrease Asset - Credit Cash at Hand
    2. Increase Expense - Debit Rates
  • Jan 29 - Owner took £75 Cash for Personal use
    1. Decrease Asset - Debit Cash at Hand
    2. Decrease Capital - Debit Drawings
  • Jan 31 - Paid White by Cheque £800
    1. Decrease Asset - Credit Cash at Bank
    2. Decrease Liability - Debit White

Double Entry and Balancing Accounts



Trial Balance
A Trial Balance is a statement, which is prepared to check the arithmetic accuracy of the double entry.  It is a list of the balances that remain in the books at the end of every month.

Example for above Transactions: