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
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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.
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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
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Balance: The amount remaining after all debits and credits are accounted for in an account or ledger.
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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
Accounting Basics: “Balancing Figure” Fundamentals Quiz
### What is the primary purpose of using a balancing figure in accounting?
- [x] To ensure the trial balance totals of debits and credits are equal.
- [ ] To attract investors.
- [ ] To enhance the profit margin.
- [ ] To reduce taxes.
> **Explanation:** The main purpose of a balancing figure is to ensure that the total amounts of debits and credits in an account or trial balance are equal.
### In which account type are balancing figures predominantly found?
- [ ] Income Statement
- [ ] Balance Sheet
- [x] Trial Balance
- [ ] Statement of Cash Flows
> **Explanation:** Balancing figures are predominantly found in the trial balance to ensure the debits and credits tally.
### What should a frequent need for balancing figures in the trial balance suggest to a bookkeeper?
- [ ] The account balances are accurate.
- [x] There might be underlying errors in the ledger entries.
- [ ] Balancing figures are mandatory.
- [ ] Tax returns are properly filed.
> **Explanation:** A frequent need for balancing figures suggests there could be underlying errors in the ledger that need to be identified and corrected.
### What is the best long-term approach instead of frequently using balancing figures?
- [ ] Consistently relying on them.
- [x] Identifying and correcting underlying errors.
- [ ] Ignoring discrepancies.
- [ ] Guessing the balance amounts.
> **Explanation:** The best long-term approach is to identify and correct the underlying errors that are causing discrepancies.
### Can a balancing figure be a sign of fraud or unethical practices in accounting?
- [ ] Always
- [x] Sometimes
- [ ] Never
- [ ] Only in large companies
> **Explanation:** Sometimes, frequent use of balancing figures might be a sign of fraud or unethical practices if used to manipulate financial statements.
### In which scenario is a balancing figure genuinely useful?
- [x] During the preliminary stage of preparing a trial balance.
- [ ] Finalizing the financial statements.
- [ ] Issuing invoices.
- [ ] Managing payroll.
> **Explanation:** A balancing figure is genuinely useful during the preliminary stage of preparing a trial balance, to identify and correct discrepancies.
### What error might occur if balancing figures are constantly used without reconciliation?
- [ ] Accounts will always be in balance.
- [x] Underlying errors might accumulate unnoticed.
- [ ] Financial statements will be more accurate.
- [ ] Debts increase.
> **Explanation:** Constant use of balancing figures without proper reconciliation might allow underlying errors to accumulate unnoticed.
### Balancing figures should ideally be:
- [ ] Routinely used in final accounting statements.
- [ ] Always reflecting a high value.
- [x] Temporary measures to find discrepancies.
- [ ] Included in tax reports.
> **Explanation:** Balancing figures should ideally be temporary measures used to find and correct discrepancies.
### What is the next step after identifying a needed balancing figure in a trial balance?
- [ ] Finalize the reports.
- [ ] Notify stakeholders immediately.
- [x] Investigate and correct the underlying errors.
- [ ] File tax returns.
> **Explanation:** The next step is to investigate and correct the underlying errors that led to the need for a balancing figure.
### Where can one learn more about balancing figures and trial balance?
- [x] Accounting textbooks and professional courses.
- [ ] Grocery stores.
- [ ] Movie theaters.
- [ ] Entertainment magazines.
> **Explanation:** Accounting textbooks and professional courses are appropriate resources for learning more about balancing figures and trial balances.
