What is a Balance Column Account?
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 basically a more detailed version of a T-account. All accounting systems use them. A balance column account not only has debit and credit columns like the simple T-accounts, but it also typically has columns for dates, descriptions or account names, adjusting journal entry numbers, and you guessed it a column for the account balance.
A balance column account has debit and credit columns for recording entries and a third column for showing the balance of the account after each entry is posted.
T-accounts are simple and direct means to show how the accounting process works. However, actual accounting systems need more structure and therefore use balance column accounts.
The balance column account format is similar to a T-account in having columns for debits and credits. It is different in including transaction date and explanation columns. It also has a column with the balance of the account after each entry is recorded.
What Does Balance Column Account Mean?
In most simple accounting examples a T-account is used to keep track of the debits and credits to a particular account. T-accounts usually have the account name and number across the top of the grid with debits and credits on the left and right columns. These are great for simple examples, but in the real world of accounting more detail is required. You can’t just have a general ledger with a bunch of T-accounts. That is where balance column accounts come into play.
T-accounts are useful illustrations, but balance column accounts are used in practice.
Here is the balance column account for cash. It looks similar to your checkbook. We have a debit, or increase column, a credit, or decrease column, and a running balance. You can see the cash receipts and payments. The current balance in the cash account at December 10, 2019, is five thousand seven hundred dollars.
In the upper right corner of the ledger account, we assign an account number to the cash account. In computer processing of information, numbers are more efficient to use than alpha characters. When we speak of account number one-zero-one, we are referring to the cash 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.