Accounting

Table of Contents

Treatment for the Balance in Ledger Accounts

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

ParticularsDebitCreditBalance
Particulars of TransactionContra Account
Purchase of 10 kg woodHome Wood300300 D
Purchase of 20 kg woodLisa Wood200500 D
Purchase of 30 kg woodRose Wood5001,000 D
Transfer of balanceRaw Materials1,0000

 

 Raw Materials Ledger Account

ParticularsDebitCreditBalance
Particulars of TransactionContra Account
Transfer of balanceWood1,0001,000 D
Transfer of balanceGlue4001,400 D
Transfer of balanceNails1001,500 D

Glue Ledger Account

ParticularsDebitCreditBalance
Particulars of TransactionContra Account
Purchase of 5 kg glueReal Glue300300 D
Purchase of 1 kg glueReal Glue100400 D
Transfer of balanceRaw Materials4000

Nails Ledger Account

ParticularsDebitCreditBalance
Particulars of TransactionContra Account
Purchase of 1,000 nailsHome Center100100 D
Transfer of balanceRaw Materials1000

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

Chairs (Sales) Ledger Account

ParticularsDebitCreditBalance
Particulars of TransactionContra Account
Sales of 5 chairsCoffee and Pastry200200
Sale of 10 chairsLisa Furniture400600
Transfer of balanceSales6000

Tables (Sales) Ledger Account

ParticularsDebitCreditBalance
Particulars of TransactionContra Account
Sale of 1 tableLisa400400
Sale of 2 tablesCoffee and Pastry6001,000
Transfer of balanceSales1,0000

Sales Ledger Account

ParticularsDebitCreditBalance
Particulars of TransactionContra Account
Transfer of balanceChairs600600
Transfer of balanceTables1,0001,600
Transfer of balanceClosets3,0004,600

Closets (Sales) Ledger Account

ParticularsDebitCreditBalance
Particulars of TransactionContra Account
Sale of 5 closetsDecor Furniture1,5001,500
Sale of 4 closetsHome Furniture1,2002,700
Sale of 1 closetDecor Furniture3003,000
Transfer of balanceSales3,0000

Registration in Ledger Accounts

 

Wood Ledger Account

ParticularsDebitCreditBalance
Particulars of TransactionContra Account
Purchase of 10 kg woodWood World300300 D
Purchase of 20 kg woodLisa Wood200500 D
Purchase of 30 kg woodRose Wood5001,000 D
Transfer of balanceRaw Materials1,0000

Raw Materials Account

ParticularsDebitCreditBalance
Particulars of TransactionContra Account
Transfer of balanceWood1,0001,000 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

ParticularsDebitCreditBalance
Particulars of TransactionContra Account
Sale of 1 tableLisa400400
Sale of 2 tablesCoffee and Pastry6001,000
Transfer of balanceSales1,0000

 

 Sales Ledger Account

ParticularsDebitCreditBalance
Particulars of TransactionContra Account
Transfer of balanceTables1,0001,000

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.