Sign In

For the sake of quality, our forum is currently "Restricted" to invitation-only. In case if you wish to join our forum, please send an email seeking an invitation to "[email protected]".

Forgot Password

Lost your password? Please enter your email address. You will receive a link and will create a new password via email.

Captcha Click on image to update the captcha.

You must login to ask question.

Discy Latest Questions

  1. This answer was edited.

    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 helpUnderstanding of debit and credit account

    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.

    Debit and 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.

    Ledger Account

    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 –

    Ledger having credit balance

    I hope you got your answer.


    Aastha Mehta.

     

    See less
    • 0
  1. This answer was edited.

    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/c2,50,000By Bank A/c1,00,000
    By Depreciation A/c20,000
    **By Balance c/d1,30,000
    Total2,50,000Total2,50,000

    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/c25,000By Purchase A/c5.00,000
    To Bank A/c40,000
    **To Balance c/d4,35,000  
    Total5,00,000Total5,00,000

    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
    • 0