Pinned

## Can assets have a credit balance?

Yes, Nancy, there are few assets which show the credit balance. Those assets generally hold zero or unfavourable balance. Assets which have a credit balance In accounting perspective assets and expenses generally have a debit balance whereas liabilities, revenue and capital have a credit balance. YeRead more

Yes, Nancy, there are few assets which show the credit balance. Those assets generally hold zero or unfavourable balance.

# Assets which have a credit balance

In accounting perspective assets and expenses generally have a debit balance whereas liabilities, revenue and capital have a credit balance. Yet there exist a couple of assets which do have a credit balance those assets are known as contra assets.

## Contra Asset

A contra asset is referred to an asset which generally has a zero or negative balance. Such an asset is used to offset or reduce the balance of the respective asset account with which it is paired to. Hence reducing or offsetting the amount of the respective asset account with the contra asset account gives us the net value of the respective asset.

It acts as an asset holding credit balance. Contra assets are useful for the organization because it allows them to follow the matching principle by initially recording an expense in the contra asset account.

## Assets with a negative balance

For Example- Max purchased an air conditioner from eBay for 4,00,000. The salvage value of air- conditioner is 30,000 and has an expected useful life of 10 years. On 31-12-yyyy, how much balance will be shown in the Accumulated Depreciation account.

Calculation Part

Annual Depreciation = (Value of Asset – Salvage value)/Estimated life of the asset.

= (4,00,000 – 30,000)/10  => 37,000

Dr                                       Accumulated Depreciation a/c                                     Cr

 Date Particulars Amount Date Particulars Amount 31-12-yyyy By Dep. a/c 37,000 31-12-yyyy By Dep. a/c 37,000 31-12-yyyy By Dep. a/c 37,000 31-12-yyyy By Dep. a/c 37,000 Total 1,48,000

Net Asset value = Total asset value – Accumulated Depreciation

= 4,00,000 – 1,48,000  => 2,52,000

# Placement in the Balance Sheet

Here in the balance sheet “Accumulated Depreciation” shows a negative balance which is a contra asset and it is deducted from the respective asset account. Hence providing us with the Net value of the asset.

See less
• 0
• Share
Share

## What is the meaning of assets have debit balance and liabilities have credit balance?

What is Debit balance? While preparing a ledger account (T-account), if the sum of the debit side is greater than the sum of the credit side, then we say that the account has a "debit balance". Debit side > Credit side Assets have debit balance Let me help you understand this concept correlatingRead more

## What is Debit balance?

While preparing a ledger account (T-account), if the sum of the debit side is greater than the sum of the credit side, then we say that the account has a “debit balance“.

Debit side > Credit side

## Assets have debit balance

Let me help you understand this concept correlating it with the golden and modern rule & with an example.

1. Golden rule of accounting for real account (ie. assets like plant & machinery, furniture & fixtures, etc) is-

Debit what comes in, Credit what goes out

2. Modern rule of accounting states-

Debit the increase in asset, Credit the decrease in asset

Keeping this in mind, we will move forward to an example.

Example for Asset A/c

Samsung Inc. acquired 2 plant & machinery for 2,50,000. Out of the 2, it sold 1 for 1,00,000. Also, 20,000 depreciation was charged. So, the ledger account for plant & machinery will be presented as follows in the books of Samsung Inc.-

 Plant & Machinery A/c To Bank A/c 2,50,000 By Bank A/c 1,00,000 By Depreciation A/c 20,000 **By Balance c/d 1,30,000 Total 2,50,000 Total 2,50,000

With the purchase of 2 plant & machinery, there will be an increase in the overall assets of Samsung Inc. So, we will have to debit the purchase/increase in the asset. And on the sale of any asset purchased before, you need to credit the asset account.

Therefore, in general, the debit side of an asset account will be > than the credit side, resulting into a debit balance.

So, in this example, the above ledger shows the debit balance (debit side > credit side) in plant & machinery A/c (By Balance c/d – 1,30,000).

## What is Credit balance?

While preparing a ledger account (T-account), if the sum of the credit side is greater than the sum of the debit balance, then we say that the account has a “credit balance“.

Credit side > Debit side

## Liabilities have credit balance

Again, let just interpret this concept correlating it with the rules along with an example.

1. Golden rule of accounting for personal account (eg. creditors) is-

Debit the receiver, Credit the giver

2. Modern rule of accounting states-

Credit the increase in liability, Debit the decrease in liability

Keeping these rules in mind, let me help you know why liabilities have a credit balance with an example.

Example for Liabilities A/c

ABC Ltd purchased raw materials from its supplier XYZ Ltd for 5,00,000. During the month it could only make payments of 25,000 and 40,000 to the supplier. The remaining amount is still outstanding. So, the ledger account for XYZ Ltd (Creditors A/c) in the books of ABC Ltd will be presented as follows-

 XYZ Ltd A/c To Bank A/c 25,000 By Purchase A/c 5.00,000 To Bank A/c 40,000 **To Balance c/d 4,35,000 Total 5,00,000 Total 5,00,000

XYZ Ltd has been credited with 5,00,000 because he is the supplier of raw materials (credit the giver). Also, ABC Ltd is now liable to pay 5,00,000 (credit the increase in liability). Then as and when we pay XYZ Ltd, there will be a decrease in the liability, therefore debit. The liability account will show a credit balance until we discharge the dues completely.

So, in general, you will always see the credit side of the liability account to be > than the debit side.

In this example, the above ledger shows the credit balance (credit side > debit side) in XYZ Ltd A/c (To Balance c/d – 4,35,000).

See less
• 3
• Share
Share