Learn - A Better Bookkeeping Service Part - 2

Thus the concept of a 'trial balance' is born: If one lists and adds up all the debit(+) balances from the pages in the ledgers, the total should be the same as the sum of the list of all the credit(-) balances from those books.  This check is the primary purpose of a trial balance. In a single column, of course, the debits and credits will therefore sum to zero, and this is sometimes how a trial balance is presented, rather than the more traditional 2-column 'debit/credit' approach. So, the art of double-entry bookkeeping is to keep the debits and credits in balance; if you make a debit entry you must make an opposing credit entry of the same value. 

The (positive) debits in this system of accounting are the assets and the expenses, the (negative) credits are the liabilities and the income. At first, these pairings seem strange, but they work to keep the books in balance.  This is because the income less expenses makes up the 'Profit and Loss Account' section of the trial balance, and the assets less liabilities make up the 'Balance Sheet' section of the trial balance. For example, if you sell some goods to a customer for £100, that you purchased from a supplier for £80, the double-entry is as follows:   

 Debit : Purchases (in the nominal ledger) £80    

Credit : Supplier account (in the purchase ledger) £(80)    

Debit : Customer account (in the sales ledger) 100    

Credit : Income account (in the nominal ledger) £(100). The trial balance then extracted from this trader's ledger books is as follows:     Income - Sales £(100)    Expenses - Purchases of goods £80    Assets - Debtors in sales ledger : £100    Liabilities - Creditors in purchase ledger : £(80)Once the customer has paid for the goods, and the supplier has in turn been paid, the entries required are:    

Debit  : Bank account

£100    Credit : Customer account (in the sales ledger) £(100)    

Debit : Supplier account (in the purchase ledger) £80    

Credit : Bank account £(80)The trial balance then extracted from this trader's ledger books is as follows:    

Income - Sales £(100)    Expenses - Purchases of goods £80    

Assets - Bank account (in the nominal ledger) : £20    

Assets - Debtors in sales ledger : £nil    Liabilities - Creditors in purchase ledger : £nilAs can be seen, each entry 'balances' in its own right (and is called a 'journal entry' to the ledgers), and therefore a 'trial balance', of equal total of debits and total of credits, is always maintained (summing to zero).In this example, the profit of the business is £(20), measured as a (negative) net credit amount and this is represented by net assets of £20 held in the business.

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