In general ledger accounts, there are two types of balances. To find out the type of balance a ledger has, one should determine the side of the ledger that has a greater balance. A ledger account that has a debit balance will have a greater debit total compared to that of the credit total. If a ledger account has a credit balance (Also see Which Ledger Accounts Will Normally Have Credit Balances?), its sum of credit entries will be greater than that of the sum of debit entries.
If a person wants to read and understand the financial statement of a company, he needs to understand the common accounting terms that most bookkeepers, including those from a bookkeeping firm in Singapore, will usually use. Debit and credit balances are among the basic concepts that one should know if they want to study the financial statements. In the article below, we will focus on the ledger accounts that have debit balances. Some examples of such accounts include the asset accounts, expense accounts, some contra accounts (such as contra liability account and contra equity account) and so on.
First and foremost, the asset accounts are one of the ledger accounts that will normally have a debit balance. When a company buys a fixed asset, it will record it as a debit transaction. After that, it will make credit entries to charge depreciation expense to that asset. Thus, the fixed asset account will always have a net debit balance.
Apart from the fixed asset accounts, the accounts for other assets like cash, accounts receivable (Also see Accounting – Accounts Receivables and Bad Debts Expense) and prepaid expenses will normally have debit balances too, and such balances often mean that these accounts have positive balances. As an instance, if the cash account has a debit balance, this means that the account has a positive amount of cash. As against, a credit balance in the cash account shows that the account has a negative account, probably caused by the issuance of cheques with an amount that is higher than what the company has on hand.
Besides, most expense and loss accounts will bring debit balances too. The examples of such accounts include the accounts for salary, rental, cost of goods sold, the loss suffered due to the disposal of assets, and others. At the end of an accounting period, the accountants will transfer the debit balances in these accounts to the company’s retained earnings account or the capital account of the sole proprietor.
Some of the contra accounts will carry debit balances too. One of the examples that we are going to discuss here is the contra revenue accounts. These accounts include sales returns, sales discounts and others. By using the contra revenue accounts, the business owners will be able to know the gross and net sales (Also see Journal Entries for Credit Sales) that the company has made. Similar to the balances in the expense and loss accounts, the accountants will move the debit balances in such contra accounts when the accounting year comes to an end.
