Accounting is all about debits, credit and making the number balance in the end. There are different ways to accomplish this. Using balance column accounts is just one way to organize entries in accounting. It is also a way to track when an account is increased or decreased by a transaction. Balance column accounts quickly summarize the current balance in any account.
A balance column account is a type of account that shows how each post affects the account. It has debit and credit columns, which based on the type of account you are looking at, show increases or decreases the balance. A balance column is used to show the current balance in the account.
When a transaction is made, it is posted in the general journal. Then, the affected accounts are debited and credited to reflect the transaction. For example, after the utilities are paid, the transaction is recorded. Then, the cash account is credited by the amount paid (the amount is entered in to the credit column of the cash account). The utilities expense account is debited by the same amount (the amount is entered into the debit column of the utilities expense account). The balance column of both accounts, after a minor recalculation, should now reflect the current balance in each account.
The debits and credits of each account holds the account’s normal balance. The normal balance is the side (debit or credit) that increases the account balance. The cash account, for example has a debit balance because a debit increases the cash balance. All the utilities expense account has a debit normal balance as well because its balance is increased via the debit column. “The process” section of this article thus describes a decrease in cash via a credit entry and an increase in utility expenses via a debit entry.
Determining Normal Balance
The balance column on the balance column account does not tell you what the normal balance is, you must deduce this on your own from knowledge of basic accounting. All asset accounts, including cash, have a debit normal balance, as do all expense accounts, including the utilities expense.
T-accounts are also used in this way. However, they lack the balance column needed for quick reference and organization. A T-account has only debit and credit columns. They also lack a date column. According to the accounting department at the Miami-Dade College, T-accounts are viewed as less structured than balance column accounts.
- Calculating payments image by Christopher Meder from Fotolia.com