## **Learning Outcomes**

After reading this article, you will be able to explain how to extract a trial balance from ledger account balances, balance T-accounts using carried-forward and brought-forward totals, distinguish between accounts that carry forward balances and those that are closed, and recognise the significance of balancing errors in financial records for ACCA FA2 exam purposes.

## **ACCA Maintaining Financial Records (FA2) Syllabus**

For ACCA Maintaining Financial Records (FA2), you are required to understand the extraction of a trial balance and the technique for balancing ledger accounts. Specifically, you should focus your revision on:

- The purpose and process of extracting a trial balance from general ledger accounts
- Balancing and closing off ledger accounts, including the use of "balance carried forward" and "balance brought forward"
- Identifying which accounts are carried forward and which are closed at period end
- Recognising the impact of errors and limitations of the trial balance
- Practical use of balanced accounts in preparing trial balances and financial statements

## **Test Your Knowledge**

_Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision._

1. In preparing a trial balance, what does it mean when an account is "balanced off" with a carried-forward amount?
2. Which of the following types of accounts are usually closed to nil at the end of the accounting period?
   a) Asset accounts  
   b) Liability accounts  
   c) Income and expense accounts  
   d) Capital accounts
3. Explain briefly the difference between "balance carried forward (c/f or c/d)" and "balance brought forward (b/f or b/d)".
4. If a trial balance does not agree, what could this indicate about the ledger accounts?

## **Introduction**

When all entries for an accounting period are completed, each ledger account must be balanced and its balance extracted so a trial balance can be prepared. This process involves totalling each side of the T-account, carrying balances forward, and understanding which accounts will appear in the next period and which will be reset to zero. Extracting the trial balance correctly is a key step towards producing accurate financial statements and is a common testing area in the ACCA FA2 exam.

> **Key Term: trial balance**
> A scheduled list of all balances from general ledger accounts at a specific point in time, with separate columns for debit and credit balances, used to check that total debits and credits are equal.

## **Balancing Accounts and Preparing for the Trial Balance**

Each ledger (T-) account must be balanced at period end to determine its closing amount. The process summarises the transactions for the period and determines the figure to carry forward.

### The Balancing Process

1. Add both sides of the account and find the larger total.
2. Enter the larger total as a "total" on both the debit and credit sides.
3. Calculate the difference as a balancing figure; this is the "balance carried forward" or "balance carried down" (c/f or c/d).
4. In the next period, bring the balance down to the opposite side as "balance brought forward" or "balance brought down" (b/f or b/d).

> **Key Term: balance carried forward (c/f or c/d)**
> The difference entered in a ledger account to make both sides add up to the same total at period end, showing the amount to be transferred to the next period.
>
> **Key Term: balance brought forward (b/f or b/d)**
> The opening balance at the start of an accounting period, carried in from the closing balance of the previous period.

### Example Layout

|             | Debit ($) |     | Credit ($) |
| ----------- | --------- | --- | ---------- |
| ...         | ...       |     | ...        |
| Total       | xxxx      |     | xxxx       |
| Balance c/f | xxxx      |     |            |
|             |           |     |            |
| Balance b/f | xxxx      |     |            |

### **Worked Example 1.1**

#### Balancing a Cash at Bank ledger account

A business has the following entries in its cash at bank account for the month:

|         | Debit |             | Credit |
| ------- | ----- | ----------- | ------ |
| Capital | 8,000 | Purchases   | 600    |
| Sales   | 300   | Rent        | 200    |
|         |       | Electricity | 100    |

How is the account balanced and what figure is brought forward?

> **Answer:**
> Total receipts (debits): 8,000 + 300 = 8,300.  
> Total payments (credits): 600 + 200 + 100 = 900.  
> Difference (balance c/f) is 8,300 - 900 = 7,400.  
> Enter "Balance c/f 7,400" on the credit side to balance both columns to 8,300.  
> On the following day, enter "Balance b/f 7,400" on the debit side.

### Balances Carried Forward or Closed Off

Not all accounts are handled the same way at period end:

- **Asset, liability, and capital accounts:** These retain their balances; they are _carried forward_ to the next accounting period.
- **Income and expense accounts:** These are _closed_ at period end. Their balances are transferred to the profit or loss account and reset to zero.

### **Worked Example 1.2**

#### Income Account at Period End

The sales account for a year-totalled \$25,000. What is its closing balance at year-end, and does it appear in the trial balance for the new period?

> **Answer:**
> At period end, the sales account is closed by transferring its balance to the profit or loss account, so the closing balance is zero. It does not appear as a brought-forward balance in the new period.

### Balancing and Extracting the Trial Balance

Once each ledger account is balanced:

1. List all debit and credit balances.
2. Prepare a two-column schedule, showing each account name and its balance in the relevant column.
3. The sum of the debit column must equal the credit column.

If the totals do not agree, an error exists in the ledger entries or in the extraction of balances.

> **Key Term: suspense account**
> A temporary account used when the trial balance does not agree, holding the difference until errors are found and corrected.

### **Worked Example 1.3**

#### Trial Balance from T-accounts

After balancing all accounts, the following end-of-period balances are found:

|                  | Balance Type | Amount ($) |
| ---------------- | ------------ | ---------- |
| Cash             | Debit        | 2,000      |
| Inventory        | Debit        | 6,000      |
| Accounts payable | Credit       | 4,000      |
| Capital          | Credit       | 7,000      |
| Sales            | Credit       | 21,000     |
| Purchases        | Debit        | 14,000     |

How should these appear in a trial balance?

> **Answer:**
> Prepare the trial balance by listing each account and its balance under either the debit or credit column. The total debits (\$2,000 + \$6,000 + \$14,000 = \$22,000) should equal the total credits (\$4,000 + \$7,000 + \$21,000 = \$32,000). If they do not, check for omissions or errors.

### **Exam Warning**

> Consistently enter balances on the correct side. Asset and expense accounts usually have debit balances; liability, income, and capital accounts usually have credit balances. Reversing these leads to an unbalanced trial balance.

### **Revision Tip**

> Practise balancing T-accounts for both asset and income accounts, ensuring you can distinguish which balances are carried forward and which are closed.

## **Summary**

Ledger accounts must be totalled and balanced at the end of the accounting period before preparing the trial balance. Asset, liability, and capital accounts are carried forward, while income and expense accounts are closed to profit or loss. Preparing the trial balance provides an early check on the correctness of the entries before preparing final statements.

## **Key Point Checklist**

_This article has covered the following key knowledge points:_

- Explain how to balance ledger accounts and calculate carried-forward and brought-forward totals
- Distinguish between accounts to be carried forward and those to be closed at period end
- Prepare a trial balance from balanced ledger accounts
- Recognise the role of the suspense account when debit and credit totals do not match
- Understand typical errors detected at the trial balance stage

## **Key Terms and Concepts**

- trial balance
- balance carried forward (c/f or c/d)
- balance brought forward (b/f or b/d)
- suspense account

Extracting the trial balance - Balancing accounts and carried-forward totals