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Before answering the question you should first understand the meaning of debit and credit accounts. The images below might be of some help In the above equation, all the accounts covered on the left-hand side of the equation are classified as debit accounts and on the right-hand side are classifiedRead more
Before answering the question you should first understand the meaning of debit and credit accounts.
The images below might be of some help
In the above equation, all the accounts covered on the left-hand side of the equation are classified as debit accounts and on the right-hand side are classified as credit accounts.
Surplus, gains and revenue are credit accounts and expense, losses or deficits are credit accounts.
Generally, All the debit accounts like plant and machinery, loan granted, sundry debtors, cash and the bank have a debit balance i.e they are most of the time positive.
Similarly, all the credit accounts like the loan from a bank, sundry creditors, bills payable have a credit balance i.e they are most of the time negative as these accounts most of the time receive just credits.
here we are simply analysing it based on numbers.
Positive Debit Balance
In simple terms, while balancing the ledger when the Debit side total > Credit side total the difference = Debit Balance. Most of the time, it maintains a “positive balance”.
This is because when you add a debit to a debit it gives you a debit i.e when you add a positive number with another positive number you get a higher positive number and when you add a credit to debit it reduces the debit balance. But in most of the cases, it remains positive.
We take up another example of a machinery account even though we credit the depreciation from that account the balance remains positive.
Negative Credit Balance
In simple terms, while balancing a ledger Credit side total > Debit side total the difference = credit balance. All the credit accounts at most of the time maintain a credit balance i.e it has a “negative balance”.
This is because when you add a credit to another credit you get a higher balance of credit similarly when you debit the credit account it reduces the credit balance. But most of the time it still gives a credit balance i.e remains negative. But you do not put a negative sign while you account for it.
The below-given ledger might be of some help to understand this better –
I hope you got your answer.
Aastha Mehta.
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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
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.
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