Classifications of Ledger Accounting – What are “Transfer” and “Absorbing”

A ledger account whose balance is transferred is called a “Transfer Ledger Account”.

A ledger account to which the balances are transferred is called an “Absorbing Ledger Account”.

 

The Accounting Registration that Accompanies a Concentration Transaction

When the balance of the Transfer Ledger Account is in debit, it is transferred to the debit column in the Absorbing Ledger Account.

When the balance of the Transfer Ledger Account is in credit, it is transferred to the credit column in the Absorbing Ledger Account.

At the same time, the ledger account that transfers a debit balance is credited by the same amount, and the ledger account that transfers a credit balance is debited by the same amount, leaving a 0 balance in the Transfer Ledger Account.

Examples:

1. Transferring balances from the Wood, Glue and Nails Ledger Accounts to the Raw Materials ledger account.

Wood Ledger Account

Particulars		Debit	Credit	Balance
Particulars of Transaction	Contra Account
Purchase of 10 kg wood	Home Wood	300		300 D
Purchase of 20 kg wood	Lisa Wood	200		500 D
Purchase of 30 kg wood	Rose Wood	500		1,000 D
Transfer of balance	Raw Materials		1,000	0

 

 Raw Materials Ledger Account

Particulars		Debit	Credit	Balance
Particulars of Transaction	Contra Account
Transfer of balance	Wood	1,000		1,000 D
Transfer of balance	Glue	400		1,400 D
Transfer of balance	Nails	100		1,500 D

Glue Ledger Account

Particulars		Debit	Credit	Balance
Particulars of Transaction	Contra Account
Purchase of 5 kg glue	Real Glue	300		300 D
Purchase of 1 kg glue	Real Glue	100		400 D
Transfer of balance	Raw Materials		400	0

Nails Ledger Account

Particulars		Debit	Credit	Balance
Particulars of Transaction	Contra Account
Purchase of 1,000 nails	Home Center	100		100 D
Transfer of balance	Raw Materials		100	0

2. Transferring balance from the Chair (Sales), Tables (Sales) and Closets (Sales) Ledger Accounts to the Sales Ledger Account.

Chairs (Sales) Ledger Account

Particulars		Debit	Credit	Balance
Particulars of Transaction	Contra Account
Sales of 5 chairs	Coffee and Pastry		200	200
Sale of 10 chairs	Lisa Furniture		400	600
Transfer of balance	Sales	600		0

Tables (Sales) Ledger Account

Particulars		Debit	Credit	Balance
Particulars of Transaction	Contra Account
Sale of 1 table	Lisa		400	400
Sale of 2 tables	Coffee and Pastry		600	1,000
Transfer of balance	Sales	1,000		0

Sales Ledger Account

Particulars		Debit	Credit	Balance
Particulars of Transaction	Contra Account
Transfer of balance	Chairs		600	600
Transfer of balance	Tables		1,000	1,600
Transfer of balance	Closets		3,000	4,600

Closets (Sales) Ledger Account

Particulars		Debit	Credit	Balance
Particulars of Transaction	Contra Account
Sale of 5 closets	Decor Furniture		1,500	1,500
Sale of 4 closets	Home Furniture		1,200	2,700
Sale of 1 closet	Decor Furniture		300	3,000
Transfer of balance	Sales	3,000		0

Registration in Ledger Accounts

 

Wood Ledger Account

Particulars		Debit	Credit	Balance
Particulars of Transaction	Contra Account
Purchase of 10 kg wood	Wood World	300		300 D
Purchase of 20 kg wood	Lisa Wood	200		500 D
Purchase of 30 kg wood	Rose Wood	500		1,000 D
Transfer of balance	Raw Materials		1,000	0

Raw Materials Account

Particulars		Debit	Credit	Balance
Particulars of Transaction	Contra Account
Transfer of balance	Wood	1,000		1,000 D

 

The Wood Ledger Account has a $1,000 debit balance, meaning that the ledger account recorded the acquisition of merchandise, and ostensibly should return it (or an equivalent value in cash).

The transaction involves the balance amounts equivalent to the value of the merchandise from the Wood Ledger Account to the Raw Materials Ledger Account, while these amounts ostensibly must eventually either be returned as merchandise or paid for.

In short, the Wood Ledger Account gives merchandise and is credited, while the Raw Materials Ledger Account ostensibly receives merchandise, and is debited.

It is sufficient to remember that the debit balance goes into the debit column.

We will review two ledger accounts – Table Sales and Sales:

 

Tables (Sales) Ledger Account

Particulars		Debit	Credit	Balance
Particulars of Transaction	Contra Account
Sale of 1 table	Lisa		400	400
Sale of 2 tables	Coffee and Pastry		600	1,000
Transfer of balance	Sales	1,000		0

 

 Sales Ledger Account

Particulars		Debit	Credit	Balance
Particulars of Transaction	Contra Account
Transfer of balance	Tables		1,000	1,000

The Tables (Sales) Ledger Account has a $1,000 credit balance, meaning that the ledger account gave merchandise, and ostensibly must receive it (or its value in money).

The transaction includes transferring the balance amounts to receiving the value of the merchandise from the Sales Ledger Account, which ostensibly must eventually receive either the merchandise or its monetary value. In short, the Table (Sales) Ledger Account receives the value of the merchandise, and is debited, while the Sales Ledger Account gives the value of the merchandise, and is credited.

It is sufficient to remember that the credit balance goes to the credit column.

Understanding What is Reconciliation

It is important to keep in mind that bookkeeping activity is accompanied by physical checks, including bank reconciliation, inventory stocktaking, and examinations of samples of other items. These checks, which are performed periodically, is called reconciliation.

For example, if there should be $1,000 in the bank according to the bookkeeping records, the balance is checked to verify that the $1,000 is really there. If bookkeeping registration shows that there is an inventory of $5,000, the warehouse is checked to make sure that the inventory is really worth $5,000, etc.