Account Balances and Terminology

1. Account Balances and Terminology

2. To calculate the balance of a t-account: • Add the two sides of the account separately • Write the “pin totals” in pencil and using small numbers • Subtract the smaller pin total from the larger one and place it beside the larger of the two pin totals. Cash 125 200 495 820 155 280 435 385 Account Balances

3. Once the account balances have been calculated, a trial balance is taken to ensure that our accounting equation is still true. • You can see a sample trial balance on page 99 of your textbook. The Trial Balance

4. Assets normally carry a debit balance and liabilities normally carry a credit balance. • Sometimes, this may not be the case. For example, if your bank account is overdrawn, it will carry a credit balance. • Usually, normal business activity will quickly return these balances to normal. Exceptional Account Balances

5. Normally, businesses aim to have as little cash on hand as possible. This is considered “cash control” • Payments are normally made by cheque or electronic funds transfer. • Therefore, the account we previously called “Cash” will now be referred to as “Bank”. Bank Account

6. Businesses with good reputations can buy goods on short term credit. That is, “buy now and pay later”. • Using credit is a convenient way to do business. • When you see the words “on account”, you know that goods have been purchased or sold on credit. It will affect A/R or A/P. Credit