Accounting

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

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.

Treatment for the Balance in Ledger Accounts 570Treatment for the Balance in Ledger Accounts