Balancing an account is the process of ensuring that the total debits and credits within that account are equal, often by calculating and posting the difference to the side with the lower total. This difference is then referred to as the 'balance carried down (c/d)' or 'balance c/d'.
Detailed Explanation
Balancing an account involves the following steps:
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Totaling Each Side: First, you separately sum all the debit entries and all the credit entries in the account.
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Identifying the Difference: Next, you calculate the difference between the debit total and the credit total.
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Adding the Balance to the Shorter Side: The difference, known as the balance, is then added to the side of the account (either debit or credit) that has the lower total. This ensures that the total debits now equal the total credits.
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Labeling the Balance: The balance is labeled as "balance carried down" (or "balance c/d") on the side where it was added. This indicates that this is the amount required to make both sides equal.
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Carrying the Balance Forward: The balance c/d is then brought down to the next accounting period as a "balance brought down" (or "balance b/d") on the opposite side. This carries the account's balance into the next period.
Example
Let's say an account has the following entries:
Debit Side:
- Item 1: $100
- Item 2: $200
- Debit Total: $300
Credit Side:
- Item 1: $50
- Item 2: $100
- Credit Total: $150
To balance this account:
- Difference: $300 (Debit) - $150 (Credit) = $150
- Adding to Shorter Side: We add $150 to the credit side.
- Labeling: This $150 is labeled "balance c/d" on the credit side.
The balanced account would now look like this (simplified):
Debit Side:
- Item 1: $100
- Item 2: $200
- Debit Total: $300
Credit Side:
- Item 1: $50
- Item 2: $100
- Balance c/d: $150
- Credit Total: $300
The balance c/d of $150 would then be brought down to the debit side in the next period as "balance b/d".
Purpose
The primary purpose of balancing an account is to:
- Ensure the accounting equation (Assets = Liabilities + Equity) remains balanced.
- Accurately reflect the financial position of a business at a specific point in time.
- Provide a starting point for the next accounting period.
- Identify errors and discrepancies in accounting records.
