Total of the two sides of account and to find out the difference is called:
Understanding Account Balancing in Accounting
In accounting, after recording transactions in journal entries and then posting them to ledger accounts, a crucial step is determining the net effect of these transactions on each account. This process involves summing up the debit side and the credit side of an account and then finding the difference between these two totals. This specific process of finding the difference is known as Balancing the account.
What is Balancing an Account?
Balancing an account means calculating the difference between the total of the debit entries and the total of the credit entries in that account for a specific period. The difference represents the closing balance of the account, which is then carried forward to the next period.
Let's look at the options provided:
- Totalling: This is simply adding up the amounts on each side (debit and credit) of an account. It is a step in the process but not the final step of finding the difference.
- Trialing: This term usually refers to preparing a Trial Balance, which is a statement listing the balances of all ledger accounts to verify the arithmetic accuracy of the ledger. It comes after accounts are balanced.
- Balancing: This is the process of summing up both sides of an account and calculating the difference. This difference is the balance that makes the two sides equal (conceptually). This is the correct term for the process described.
- Analysing: This is a broad term that involves examining financial data to gain insights. While analyzing account balances is part of financial analysis, the act of finding the difference between the debit and credit totals is specifically called Balancing.
The Process of Balancing
The main steps involved in Balancing an account are:
- Total the debit side of the account.
- Total the credit side of the account.
- Find the difference between the debit total and the credit total.
- If the debit total is greater, the difference is a debit balance. If the credit total is greater, the difference is a credit balance.
- Enter this difference on the side with the smaller total to make both sides equal. This is written as "Balance c/d" (carried down).
- The balance is then brought down to the opposite side for the next accounting period, written as "Balance b/d" (brought down).
Therefore, the total of the two sides of an account and finding out the difference is correctly termed Balancing.
Important Questions from Basics of Accounting
Assertion (A) : Personal transactions of the owners of the business are not recorded in the books.
Reasoning (R) : According to the business entity concept, each business enterprise is considered as an accounting unit separate from owners.
Match List I with List II.
List I (Accounting Concepts)
List II (Purpose/Applicability)
A.
Going Concern Concept I.
The same accounting method used by a firm from one period to another B.
Consistency II.
Relate to the relative size or importance of an item or event C.
Cost concept III.
This an inappropriate assumption for a firm undergoing bankruptcy D.
Materiality
IV.
The normal basis used to account for assets
Choose the correct answer from the options given below:A company purchased a machinery on 01-01-2015 for a sum of Rs. 60,000. The retail price index on that date was 150. What is the value of machinery according to CPP method on 31st December 2015, When the price index was 200.
Which among the following are generally accepted methods of accounting for price level changes?
A. Replacement Cost Method
B. Current Purchasing Power Method
C. Opportunity Cost Method
D. Current Cost Accounting Method
E. Standard Cost Method
Choose the correct answer from the options given below:
Which of the following is/are correct?
I. All permanent accounts are balanced and carried forward to the next accounting period.
II. The temporary accounts are closed at the end of the accounting period.
