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Balancing and Closing of Ledger Accounts

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Balancing and Closing of Ledger Accounts

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The ledger accounts are balanced and closed after all transactions occurred during have been posted therein. Generally, the accounts are balanced and closed at the end of an accounting period. However, they may also be balanced and closed as and when required by the business. The balance of an account is the difference between the total of all debit items and credit items appearing in the account. The following steps are taken while balancing/ closing a ledger account:

  • Prepare all required accounts in the ledger book.
  • Post all the journal entries in the concerned accounts.
  • Total the two sides of the accounts separately by noting the difference.
  • Put the difference on the shorter side of the account to make the two sides equal.
  • Against the difference, write the words 'To Balance c/d' on the debit side or 'By Balance b/d' on credit side, whatever is the case in the particulars column of the concerned account. The balance used to close the account is called closing balance.
  • Write the totals in two amount columns opposite each other and draw two parallel lines below the lines.
  • Bring down the amount of balance on the opposite side of the account for the next accounting period. Against the amount, write the words 'To balance b/d' on the debit side or 'By Balance b/d' on the credit side, whatever is the case in the particulars column of the concerned account. The balance used to open the account is called opening balance. The balance with the words 'To balance b/d' is called debit balance and the balance with the words 'By Balance b/d' is called credit balance.

Significance of ledger account balances

The balances of different ledger accounts carry significant meanings. The significant meanings of different types of accounts are as follows:

  1. Personal accounts
    Personal accounts relate to the persons of different kinds. A person can be either the receiver or the giver of the benefits. Therefore, the different balances of personal accounts signify the following meanings:
    • Debit balance
      If the personal account has the debit balance, it signifies that the person received more benefits from the business than what s/he has given benefits to it. Therefore, the person is debtor of the business.
    • Credit balance
      If the personal account shows the credit balance, it implies that the person has given more benefits to the business than what s/he has received from it. Therefore, the person is the creditor of the business.

  2. Real accounts
    Real accounts relate to assets of different kinds. An asset either comes into the business through purchases or goes out of it through the sale or write off. Since assets can go out from the business unless there is any, it never shows credit balance. Therefore, real accounts have only debit balances.
    • Debit balance
      If the real account shows the debit balance, it signifies that the business has the particular assets of a certain value on the day of balancing the account.

  3. Nominal accounts
    Nominal accounts relate to expenses and incomes. Therefore, different balances of nominal accounts show the following significance:
    • Debit balance
      If the nominal account shows the debit balance, it implies that the business has made expenses of a particular amount on a certain head during a period.
    • Credit balance
      If the nominal account shows the credit balance, it signifies that the business has earned incomes of a particular amount on a certain head



  • The ledger accounts are balanced and closed after all transactions occurred during have been posted therein.
  • Generally, the accounts are balanced and closed at the end of an accounting period. 
  • The balance of an account is the difference between the total of all debit items and credit items appearing in the account.
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Very Short Questions

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  • Which one of them is the first step in balancing and closing the ledger account?

    Post all the journal entries in the concerned accounts.
    ;i:3;s:103:
    ;i:2;s:72:
  • Real accounts relate to ______.

    assets
    expenses
    incomes
    a particular person
  • Nominal accounts do not relate to ______

    incomes
    gains
    expenses
    assets
  • Personal accounts relate to the ______ of different kinds.

    assets
    incomes
    persons
    gains
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