What is a Balancing Figure?
A balancing figure is an entry in accounting that is inserted into a financial statement to ensure that the total debits equal the total credits. This is essential for the double-entry bookkeeping system where each transaction has equal debit and credit entries. In other words, a balancing figure is used to reconcile and equalize the totals of an account or a set of accounts.
Examples
Trial Balance Preparation:
- While preparing a trial balance, a bookkeeper notices a discrepancy between the total debits and credits. They insert a balancing figure to bring the two totals into agreement.
Bank Reconciliation:
- During bank reconciliation, if there are entries that appear only in the bank statement and not in the company’s book, a balancing figure might be used temporarily to balance the accounts before the actual discrepancies are resolved.
Frequently Asked Questions
Q: Is using a balancing figure a good accounting practice?
- A: Regularly using a balancing figure can indicate underlying errors in the ledgers. It’s critical to identify and correct these errors rather than consistently relying on balancing figures.
Q: Can balancing figures be found in final accounts?
- A: Generally, balancing figures should be temporary. They are more commonly used in internal reconciliations and preliminary stages like trial balances rather than in final accounts.
Q: What causes the need for a balancing figure?
- A: Discrepancies could arise from errors such as data entry mistakes, omissions, or recording the same transaction differently in the ledgers.
Q: How do you resolve discrepancies without using a balancing figure?
- A: Review all transactions carefully, ensure each debit entry has a corresponding credit entry, and cross-verify with supporting documents.
Related Terms with Definitions
Balance: The amount remaining after all debits and credits are accounted for in an account or ledger.
Balance Off: The process of bringing the total percentage of transactions to equal the closing balance of specific accounts.
Online References
Suggested Books for Further Studies
- “Accounting Made Simple: Accounting Explained in 100 Pages or Less” by Mike Piper
- “Financial Accounting For Dummies” by Maire Loughran
- “Accounting Principles” by Jerry J. Weygandt, Paul D. Kimmel, and Donald E. Kieso