1. Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12 th Edition, © Pearson Education Limited 2012 Slide 5.1 Chapter 5 Balancing-off accounts

2. Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12 th Edition, © Pearson Education Limited 2012 Slide 5.2 Learning objectives After you have studied this chapter, you should be able to:  Close-off accounts when appropriate  Balance-off accounts at the end of a period and bring down the opening balance to the next period  Distinguish between a debit balance and a credit balance  Describe and prepare accounts in three- column format

3. Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12 th Edition, © Pearson Education Limited 2012 Slide 5.3 Why balance accounts? T-accounts need to be balanced at various times during the year:  At the end of each accounting period to summarise the situation.  Once a year to calculate profit.  To see what is happening with respect to a particular account.

4. Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12 th Edition, © Pearson Education Limited 2012 Slide 5.4 How to balance where debtors have paid their accounts This is the account of K. Tandy in August 2012:

5. Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12 th Edition, © Pearson Education Limited 2012 Slide 5.5 How to balance where debtors have paid their accounts (Continued) This is the balanced account:

6. Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12 th Edition, © Pearson Education Limited 2012 Slide 5.6 How to balance where debtors still owe for goods This is the account of D. Knight in August 2012:

7. Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12 th Edition, © Pearson Education Limited 2012 Slide 5.7 How to balance where debtors still owe for goods (Continued) To balance, we will use a five-step approach. 1. Add up both sides to find out their totals. Note: do not write anything in the account at this stage. 2. Deduct the smaller total from the larger total to find the balance. 3. Now enter the balance on the side with the smallest total. This now means the totals will be equal.

8. Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12 th Edition, © Pearson Education Limited 2012 Slide 5.8 How to balance where debtors still owe for goods (Continued) 4. Enter totals level with each other. 5. Now enter the balance on the line below the totals on the opposite side to the balance shown above the totals.

9. Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12 th Edition, © Pearson Education Limited 2012 Slide 5.9 How to balance where debtors still owe for goods (Continued) This is the balanced account:

10. Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12 th Edition, © Pearson Education Limited 2012 Slide 5.10 Balancing a creditor’s account This is the account of E. Williams in August 2012:

11. Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12 th Edition, © Pearson Education Limited 2012 Slide 5.11 Balancing a creditor’s account (Continued) This is the balanced account:

12. Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12 th Edition, © Pearson Education Limited 2012 Slide 5.12 Three-column accounts  Three-column accounts do not use the format of the T-account.  There are three columns and the third column provides a running total of the balance.  Three-column accounts are very similar to the bank statement you will receive for a current account.

13. Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12 th Edition, © Pearson Education Limited 2012 Slide 5.13 An example of a three-column account

14. Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12 th Edition, © Pearson Education Limited 2012 Slide 5.14 Learning outcomes You should have now learned: 1. How to close off accounts upon which there is no balance outstanding 2. How to balance-off accounts at the end of a period 3. How to bring down the opening balance on an account at the start of a new period

15. Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12 th Edition, © Pearson Education Limited 2012 Slide 5.15 Learning outcomes (Continued) 4. That when an opening balance on an account is a debit, that account is said to have a debit balance. It also has a debit balance during a period whenever the total of the debit side exceeds the total of the credit side 5. That when an opening balance on an account is a credit, that account is said to have a credit balance. It also has a credit balance during a period whenever the total of the credit side exceeds the total of the debit side

16. Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12 th Edition, © Pearson Education Limited 2012 Slide 5.16 Learning outcomes (Continued) 6. That ‘debtors’ are people or organisations whose account in your accounting books has a greater value on the debit side. They owe you money. They are included in the amount shown for accounts receivable in the statement of financial position 7. That ‘creditors’ are people or organisations whose account in your accounting books has a greater value on the credit side. You owe them money. They are included in the amount shown for accounts payable in the statement of financial position

17. Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12 th Edition, © Pearson Education Limited 2012 Slide 5.17 Learning outcomes (Continued) 8. That T-account and three-column accounts disclose the same balance, given identical information about transactions 9. That three-column accounts update and show the balance on the account after every transaction 10. How to prepare three-column accounts