Debit balance means excess of credit side over debit side. For Example- At the beginning of the year the debit balance of trade receivables is 3,000 and there is a decrease(credit) of trade receivables of 1,000 during the year and an increase(debit) of trade receivables of 4,000 then at the end therRead more
Debit balance means excess of credit side over debit side.
For Example- At the beginning of the year the debit balance of trade receivables is 3,000 and there is a decrease(credit) of trade receivables of 1,000 during the year and an increase(debit) of trade receivables of 4,000 then at the end there will be a debit balance of 6,000 of trade receivables at the end
A Debit balance basically signifies all expenses and losses and all positive balances of assets. The debit balance increases when any asset increases and decreases when any asset decreases.
Assets
All the assets that appear in the balance sheet always have a debit balance. The debit balance under it will increase as it debits. Some of these assets can be illustrated below -:
- Â Cash and Bank Balance: Cash and Bank Balance means the amount that is held by a person in physical form or in a current/savings account.
- Property, Plant, and Equipment-Â Property Plant, and Equipment means assets that are used for the production of goods and services.
- Account Receivables– Account Receivables means the amount that is due from debtors to whom goods were sold at credit for a specified time period.
- Inventory – Inventory means goods that are used in the normal course of business.
- Investments– Investments are the amount invested in other companies from which they were expecting returns in future periods.
Expenses and Losses
All expenses that appear on the debit side of the P&L account have a debit balance in their accounts.
For eg-: A rent of 10,000 is given to the landlord under which the work has been done by the entity.
For eg-: A depreciation of 10% is there on an asset of 12,000 will result in a debit balance under depreciation in the P&L Account.
Some of the following expenses can be illustrated below
- Rent- Rent means a property that an entity takes on lease for business purpose and pay a certain amount to the landlord for such lease.
- Depreciation– Depreciation means a fall in the value of an asset due to its usage every year
- Loss on Sale of an asset- Loss on the Sale of an Asset means the sale amount of the asset is less than its WDV
- Printing and stationery– Printing and Stationery means the paperwork or anything related to stationery used for business purposes
- Audit fees– Audit fees are the amount which is given to an auditor for auditing the financials of an entity
- Salaries and Wages– Salaries and Wages are the amount given to employees for the work they have done for the entity
- Insurance– Insurance means a premium given by an entity for insurance done by them
- Advertising– Advertising means any promotion that a company does of its product to increase its revenue
So after seeing all the above points we can conclude that the debit balance includes all the expenses that are in the P&L account and all the assets that are there in the Balance sheet. So its balance increases when there is an increase in its account.
CREDIT BALANCE
Credit balance means excess of credit side over debit side.
For example, At the beginning of the year, the credit balance of trade payable is 3,000 and there is a debit of trade payable of 1,000 during the year and an increase(credit) of trade payable of 4,000 then at end there will be a credit balance of 6,000 for trade payable at the end
.A Credit balance signifies all income and gains and all liabilities and capital that is there in business.
Liabilities
- Account Payables
- Bank Overdraft
- Bonds
- Income Tax Payables
- Notes Payable
- Deferred Tax Liability
Income and Gains
- Interest Received
- Dividend Received
- Rent Received
- Gains on Sale of Capital Gains
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Debit Balance A debit accounting entry represents an increase in asset or expense account or a decrease in liabilities of an individual or enterprise. Debit balance is the amount in excess of debit entries over credit entries in the general ledger. The debit balance is shown as Dr. Credit Balance ARead more
Debit Balance
A debit accounting entry represents an increase in asset or expense account or a decrease in liabilities of an individual or enterprise.
Debit balance is the amount in excess of debit entries over credit entries in the general ledger. The debit balance is shown as Dr.
Credit Balance
A credit accounting entry represents a decrease in assets or an increase in liabilities or income accounts of an individual or enterprise.
Credit balance is the amount in excess of credit entries over debit entries in the general ledger. The credit balance is shown as Cr.
Debit Balance in the Passbook
A passbook is a record of a customer’s account transactions kept by the bank. The passbook is a copy of the bank account of the customer in the books of banks. Debit balance in the passbook is also called “Overdraft”.
All the transactions either debit or credit are recorded in the passbook. When the total amount of all debit entries in a passbook is more than the total of credit entries, it results in a debit balance. It means that an individual or enterprise owes to the bank.
The overdraft facility given by the bank has a limit i.e. only a certain amount can be withdrawn in excess of the amount deposited and if one avails overdraft facility, interest is also charged by the bank.
The amount withdrawn by a customer from the bank is shown as a debit entry and the amount deposited by the customer is shown as a credit entry. The passbook’s debit balance is a negative balance or unfavourable balance while the passbook’s credit balance is a positive or favourable balance.
For example: An individual deposited $50,000 in a bank account and withdrew a total sum of $60,000. So here, the passbook will show an overdraft of $10,000 i.e. the debit balance of the passbook. It signifies negative cash flow of the individual and that individual owes $10,000 to the bank.
Credit balance in Pass Book
On the other hand, when the total amount of all the debit entries in a passbook is less than the total amount of credit entries, it results in a credit balance. It means the amount deposited by a customer is more than the amount withdrawn indicating the positive cashflow in the account.
Reconciliation
It is the process of identifying and rectifying differences between the passbook and cashbook maintained by the bank and customer respectively. The aim is to ensure the accuracy of the transaction recorded in the cashbook and passbook.
Debit Balance Reconciliation
The debit balance in the cashbook and the credit balance in the passbook shows that some outstanding cheques are in the process of clearing and these cheques need to be adjusted for reconciliation of the balance of the passbook and cashbook.
Credit Balance Reconciliation
The credit balance in the cashbook and debit balance in the passbook shows that deposits already recorded in the cashbook are yet to be recorded in the passbook by the bank and these deposits need to be adjusted in the passbook for reconciliation of the balance of the passbook and cashbook.
Conclusion
The debit and credit balance of the passbook is the indicator of the financial position of an enterprise or individual. A debit balance signifies more withdrawals than receipts resulting in an overdraft.
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