A Debit balance basically signifies all expenses and losses and all positive balances of assets. A debit is an accounting entry that either increases an asset or expense account or decreases a liability or equity account. The debit balance increases when any asset increases and decreases when any asRead more
A Debit balance basically signifies all expenses and losses and all positive balances of assets. A debit is an accounting entry that either increases an asset or expense account or decreases a liability or equity account.
The debit balance increases when any asset increases and decreases when any asset decreases. There are various accounts that have debit balances which can be illustrated below -:
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 -:
- Cash and Bank Balance: The cash and bank account always have a debit balance. Its debit balance always increases as its amount increases(Deposited) and will decrease as its amount decreases(withdrawn) For example-: Cash received from creditors of 10,000 will increase the debit balance
- Property, Plant, and Equipment – The PPE account always has a debit balance. Its debit balance will always increase when there are additions in PPE and will decrease when there are deletions of the asset. For example, a new plant that has been installed by the company will increase the debit balance.
- Account Receivables– The Account Receivables account always has a debit balance. Its debit balance will always increase when there is an increase in trade receivables which remain due from debtors and will decrease when there is a decrease in trade receivables which are due from debtors and they have recovered it. For eg-: The stock that has been sold in credit to debtors of 10,000 will result in an increase in debtors.
- Inventory – The Inventory accounts always have a debit balance. Its debit balance will always increase when there are additions to Inventory and will decrease when there are deletions of Inventory
- Investments– The Investments account always has a debit balance. Its debit balance will always increase when there is a purchase in Investments and will decrease when there is a sale of Investments.
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 120000 will result in a debit balance under depreciation in the P&L Account.
For eg-: Audit fees of 5000 are given by the entity to the auditors.
For example-: Salaries/Payroll of 500000 given to the employees by the company during the year.
Some of the following expenses can be illustrated below
- Rent
- Depreciation
- General Expenses
- Loss on Sale of asset
- Printing and stationery
- Audit fees
- Outstanding fees
- Salaries and Wages
- Insurance
- Advertising
- Promotion expenses
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.
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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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