Account Balances and Terminology. Pacific Truckings

Account Balances and Terminology

Pacific Truckings

Calculating the Balance of an Account

• 1. You need to know if the account is a Debit or a Credit account.

-If debits increase the account, then credits decrease it.-If credits increase the account, the debits decrease it.

Calculating the Balance of an Account

• Step 1: Add the two sides separately. Write the subtotals very small, underneath the last items. These are called “pin totals” or “pencil footings.”

• Step 2: Figure out what needs to be added or subtracted. (Smaller number from the larger number.

Exceptional Account Balances

• What happens if a debit account ends up with a credit balance?• We have an “Exceptional balance.”• Businesses overpaying?• Customer with no account balance returns an item for credit.• A purchaser returns goods for credit to a supplier with whom there

is no account balance.

• Overdraft

Interpreting the Balance of an Account

• We have to constantly refer to whether accounts are debit or credit balances.-Cash is an asset because it has a debit balance.-Van Loon A/R is an asset because it has a debit balance.-Dini Bros. A/P is a liability because it has a credit balance and is not the capital account.

Bank Account

• Why do we use bank accounts?

-Faster-Convenient-Safe

• Businesses do not keep “cash” available anymore.• From now on we will use “BANK” instead of the “cash

account.”

Bank Account

• When an item is “bought for cash” that means it is paid for at the time. This can also mean “cheques” even though it is not immediately paid for.

Buying and Selling on Credit

• Businesses have to have good reputations to do this. It means they can pay within 30 days (usually). Why do we do this?

• Companies are able to inspect the material and fully pay for it if they accept it..

“On Account”• There are four types of payments “on account:”

• 1. Purchase on Account: Not paid for at time of purchase.• 2. Sale on Account: Item sold on credit, no cash received.• 3. Payment on Account: Money paid out to a creditor to decrease

amount owed.• 4. Receipt on Account: Money received from a debtor to reduce the

amount owed.