Closing off an account and bringing down the balance

The balance on an account can be established at any time as the difference between the total value of debit entries and the total value of credit entries.

•  If total debit entries in an account exceed total credits, there is a debit balance on the account.
•  If total credit entries in an account exceed total debits there is a credit balance on the account.

When the balance on an account is established at the end of a period the process is described as closing off the account and bringing down the balance (though the same process is used whenever a balance is extracted). The figure identified in this way is called the closing balance.

•  Balances on expense accounts and income accounts are transferred to the statement of comprehensive income. (Note: There might be some accruals and prepayments on expense accounts.)
•  Balances on the asset, liability and capital accounts are carried forward as closing balances at the end of the period, and become opening balances at the beginning of the next period

Example: Closing off and bringing down a balance (Using Abbas’s cash account after transaction 12)

Step 1: Add up both sides of the account

Example: Closing off and bringing down a balance (continued)

Step 2: Leave a line and write the biggest figure in totalling lines on each side of the account.

Step 3: One side of the account will not add to the total. Insert a balancing figure describing this as balance c/d (carried down)

Example: Closing off and bringing down a balance (continued)

Step 4: Write the balancing figure below the totalling lines on the other side of the account describing it as balance b/d (brought down)

Note that it is usual to skip step 2 and not write in the subtotals but go straight to step 3.

The full working in that case would look like this:

Example: Closing off and bringing down a balance (Using Abbas’s cash account after transaction 12)

In this example, there is a debit balance on the bank account at the end of the period. The debit balance of Rs. 15,000 is brought forward as the opening balance on the account at the beginning of the next period.

This indicates that the business has an asset (a debit balance) of cash in the bank account totalling Rs. 15,000.

Note

In the above example we used c/d and b/d as a description of the balance on the closing off of the account.

You might also use c/f (which stands for carried forward) and b/f (which stands for brought forward).

Returning to Abbas…….

Example: Abbas – All accounts closed off with balances brought down

Example: Abbas – All accounts closed off