Credit Balance

Article byWallstreetmojo Team
Edited byAshish Kumar Srivastav
Reviewed byDheeraj Vaidya, CFA, FRM

Credit Balance Meaning

A credit balance is an amount attributed to the margin account following the successful completion of the short sale transaction. It normally assists in counterbalancing the prospective future losses of the firm. A credit surges the equity or liability account on the balance sheet, while a debit raises the expense or asset account.

You are free to use this image on your website, templates, etc, Please provide us with an attribution linkHow to Provide Attribution?Article Link to be Hyperlinked
For eg:
Source: Credit Balance (wallstreetmojo.com)

Credit balance transfer cards aid you in transferring the payable credit card amount to another bank’s credit card for a lesser debt burden. Moreover, the ledger accounts with a credit balance are liabilities, income, contra expense, reserves, capital, and provisions.

Key Takeaways

  • The credit balance is the full amount credited to the cash account after implementing the short sale order.
  • The associated general ledger accounts comprise income, reserves, liabilities, provisions, capital, and contra expense.
  • It may be negative or positive and is stated on the right side of the accounting book to counterbalance the debit portions.
  • This involves the total outstanding amount on the credit card, positive bank balance, amount payable in the margin account after buying securities, and negative balance in the asset account. 

Credit Balance Explained

Credit balance or net balance is the final amount (positive or negative) mentioned to the right of the ledger in accountingLedger in AccountingLedger in accounting records and processes a firm’s financial data, taken from journal entries. This becomes an important financial record for future reference. It is used for creating financial statements. It is also known as the second book of entry.read more. In the short sale, the investor sells financial securities in the market and then hopes to re-purchase them at a budget price. The brokerage account with short positions possesses a normal credit balance, that can be refunded, while the one with long positions has a debit balance.

Financial Modeling & Valuation Courses Bundle (25+ Hours Video Series)

–>> If you want to learn Financial Modeling & Valuation professionally , then do check this ​Financial Modeling & Valuation Course Bundle​ (25+ hours of video tutorials with step by step McDonald’s Financial Model). Unlock the art of financial modeling and valuation with a comprehensive course covering McDonald’s forecast methodologies, advanced valuation techniques, and financial statements.

That is to say, the net balance involves:

Moreover, the firm may also request for credit balance refund to get back those extra bucks paid more than the originally owed amount. Generally, net balance demonstrates that the sum of money owed to the organization exceeds the amount it owes.

Examples

Furthermore, let’s consider the below-mentioned normal credit balance examples.

Example#1

To clarify, assume that a firm, ABC Corp. maintains a balance sheetBalance SheetA balance sheet is one of the financial statements of a company that presents the shareholders' equity, liabilities, and assets of the company at a specific point in time. It is based on the accounting equation that states that the sum of the total liabilities and the owner's capital equals the total assets of the company.read more with routinely updated debit and credit details. As mentioned above, the following facts appear on the credit side.

  1. Trade payables: $2,00,000
  2. Share capitalShare CapitalShare capital refers to the funds raised by an organization by issuing the company's initial public offerings, common shares or preference stocks to the public. It appears as the owner's or shareholders' equity on the corporate balance sheet's liability side.read more: $2,000,000
  3. Security premium: $3,000,000
  4. Capital reserve: $530,000
  5. Salary payableSalary PayableSalary payable refers to the liability of the company towards its employees against the amount of salary of a period that became due but has not been paid yet to them by the company and it is shown in the balance of the company under the head liability.read more: $60,000
  6. Rent payable: $50,000
  7. Secured loan: $1,100,000
  8. Unsecured loan: $1,50,000

In short, here is the typical balanced ledger.

Ledger nameDebit balanceCredit balance
Motor car$60,000 
Fixed assets$4,00,000 
Furniture$5,000,000 
Laptops$5,50,000 
Cash in hand$40,000 
Bank balances$300,000 
Bank overdraft(-) $3,00,000 
Trade receivables$575,000 
Security premium $3,000,000
Trade payables $2,00,000
Capital reserve $530,000
Share capital $2,000,000
Rent expenses$2,65,000 
Rent payable $50,000
Electricity expenses$2,00,000 
Salary payable $60,000
Secured loan $1,100,000
Unsecured loan $1,50,000
Total$7,090,000$7,090,000

Example#2

Here are the top 10 0% annual percentage rate (APR) credit balance transfer cards listed for May 2022 which certainly help you save on the interest. Moreover, these cards aid in credit card consolidation and let the investors switch to another card with better terms.

  1. US Bank Visa Platinum Card
  2. Wells Fargo Reflect Card
  3. Bank Americard Credit Card
  4. Citi Double Cash Card
  5. Citi Diamond Preferred Card
  6. Chase Slate Edge
  7. Citi Rewards+ Card
  8. Citi Simplicity Card
  9. Navy Federal Credit Union Platinum Credit Card
  10. Chase Freedom Flex

Credit Balance Accounts

The net balance is related to the following accounts in bookkeepingBookkeepingBookkeeping is the day-to-day documentation of a company’s financial transactions. These transactions include purchases, sales, receipts, and payments.read more.

1. Liability Accounts

Please note that these are a group in the account book of a firm exhibiting the amount due. On the debit credit balance sheet, a debit to these accounts means liability cutback while a credit denotes liability increment. It has two major types, i.e., current and non-current liabilities.

They also include bank overdraftOverdraftOverdraft is a banking facility that offers short-term credit to the account holders by allowing them to withdraw money from their savings or current account even if their account balance is or below zero. Its authorized limit differs from customer to customer.read more, short-term loansShort-Term LoansShort-term loans are defined as borrowings undertaken for a short period to meet immediate monetary requirements.read more, debenturesDebenturesDebentures refer to long-term debt instruments issued by a government or corporation to meet its financial requirements. In return, investors are compensated with an interest income for being a creditor to the issuer.read more, secured loansSecured LoansSecured loans refer to the type of loans approved and received against a guarantee or collateral. If they fail to do so, the lending institution acquires the collateral to compensate for the amount that the borrowers were allowed.read more, call and put optionsPut OptionsPut Option is a financial instrument that gives the buyer the right to sell the option anytime before the date of contract expiration at a pre-specified price called strike price. It protects the underlying asset from any downfall of the underlying asset anticipated.read more, deferred tax liabilitiesDeferred Tax LiabilitiesDeferred tax liabilities arise to the company due to the timing difference between the accrual of the tax and the date when the company pays the taxes to the tax authorities. This is because taxes get due in one accounting period but are not paid in that period.read more, unsecured loansUnsecured LoansAn unsecured loan is a loan extended without the need for any collateral. It is supported by a borrower’s strong creditworthiness and economic stabilityread more, and swaps in financeSwaps In FinanceSwaps in finance involve a contract between two or more parties that involves exchanging cash flows based on a predetermined notional principal amount, including interest rate swaps, the exchange of floating rate interest with a fixed rate of interest.read more.

2. Reserves

It is a fraction of the available profit set aside for a particular reason, like dispersion to shareholdersShareholdersA shareholder is an individual or an institution that owns one or more shares of stock in a public or a private corporation and, therefore, are the legal owners of the company. The ownership percentage depends on the number of shares they hold against the company's total shares.read more in case of liquidationLiquidationLiquidation is the process of winding up a business or a segment of the business by selling off its assets. The amount realized by this is used to pay off the creditors and all other liabilities of the business in a specific order.read more or business development. Furthermore, reserves or general reserveGeneral ReserveGeneral reserve is the amount kept aside from the profit earned by the company during its normal course of the operation to meet future needs like contingencies, strengthening the company’s financial position, increasing working capital, paying dividends, offsetting specific future losses.read more are of two kinds, namely, revenue reserves and capital reservesCapital ReserveCapital reserve is a reserve that is formed from the company's profits earned from its non-operating activities during a period of time and is retained for the purpose of financing the company's long-term projects or writing off its capital expenses in the future.read more.

For example, reserve for dividends equalization, expansion, increased replacement expenses, shares premiumShares PremiumShare premium is the difference between the issue price and the par value of the stock and is also known as securities premium. The shares are said to be issued at a premium when the issue price of the share is greater than its face value or par value. This premium is then credited to the share premium account of the company.read more, etc.

3. Capital Account

A capital accountCapital AccountThe capital account refers to the general ledger that records the transactions related to owners funds, i.e. their contributions earnings earned by the business till date after reduction of any distributions such as dividends. It is reported in the balance sheet under the equity side as “shareholders’ equity.”read more is the documentation of the funding amount and income from the company, incorporating minority interestMinority InterestMinority interest is the investors' stakeholding that is less than 50% of the existing shares or the voting rights in the company. The minority shareholders do not have control over the company through their voting rights, thereby having a meagre role in the corporate decision-making.read more accounts. That is to say, the capital account tracks retained earningsRetained EarningsRetained Earnings are defined as the cumulative earnings earned by the company till the date after adjusting for the distribution of the dividend or the other distributions to the investors of the company. It is shown as the part of owner’s equity in the liability side of the balance sheet of the company.read more throughout one accounting periodAccounting PeriodAccounting Period refers to the period in which all financial transactions are recorded and financial statements are prepared. This might be quarterly, semi-annually, or annually, depending on the period for which you want to create the financial statements to be presented to investors so that they can track and compare the company's overall performance.read more to another.

Please note that it has two chief subaccounts on the debit credit balance sheet, namely capital transfer and acquisition and disposal of non-produced, non-financial assets. Moreover, the examples encompass partnerships and LLCs, sole proprietorships, and shareholders.

4. Provisions

Please note that it represents the capital allocated by the business to offset predictable future losses or expenditures. This assists in computing the gross taxable incomeTaxable IncomeThe taxable income formula calculates the total income taxable under the income tax. It differs based on whether you are calculating the taxable income for an individual or a business corporation.read more of the enterprise. For example, asset impairments, accruals, depreciation, bad debts, guarantees, provision for income tax, etc.

5. Contra Expense Account

A contra expense account is an account in the ledger that counterbalances another particular expense account and sustains the matching principle of accountingMatching Principle Of AccountingThe Matching Principle of Accounting provides accounting guidance, stating that all expenses should be recognized in the income statement of the period in which the revenue related to that expense is earned. This means that, regardless of when the actual transaction is made, the expenses that are entered into the debit side of the accounts should have a corresponding credit entry in the same period.read more. Its examples include purchase allowances, purchase returns, and purchase discounts for the business transactionBusiness TransactionA business transaction is the exchange of goods or services for cash with third parties (such as customers, vendors, etc.). The goods involved have monetary and tangible economic value, which may be recorded and presented in the company's financial statements.read more.

6. Income

It comprises the revenue and gain accounts certainly implicating the business’s cash from its operating and non-operating ventures. For instance, asset sales, the dividend declaredDividend DeclaredDividend declared is that portion of profits earned that the company’s board of directors decides to pay off as dividends to the shareholders of such company in return to the investment done by the shareholders through the purchase of the company’s securities.read more, consulting services, and interest incomeInterest IncomeInterest Income is the amount of revenue generated by interest-yielding investments like certificates of deposit, savings accounts, or other investments & it is reported in the Company’s income statement. read more.Dividend declared is that portion of profits earned that the company’s board of directors decides to pay off as dividends to the shareholders of such company in return to the investment done by the shareholders through the purchase of the company’s securities.read more

Frequently Asked Questions (FAQs)

What Is a Balance Transfer Credit Card?

The financial organization issues a balance transfer credit card permitting the customers for the overdue balance transfer process to another bank’s credit card. In addition, it aids in diminishing the tax burden by offering low-interest rates on monthly installments.

How To Check Credit Card Balance?


Credit cardholders can check their balance (maybe refunded) through the following methods:
1. Internet Banking
2. Monthly credit card statement
3. Contacting customer care
4. Mobile app
5. ATM, or
6. SMS

The customers may also request for credit balance refund through offline or online portals.

What Is Statement Balance on Credit Card?

Statement balance on a credit card certainly depicts total payments and expenditures made to the account throughout one complete billing cycle. Therefore, paying up lesser than their statement balance will put the account in good standing, though they will incur interest rates. Meanwhile, the customers must prioritize the payment of their statement balance over the current balance.

This has been a guide to Credit Balance and its Meaning. Here we explain normal credit balance ledger accounts, balance transfer cards, & the refund process. You can learn more about accounting from the following articles –

Reader Interactions

Leave a Reply

Your email address will not be published. Required fields are marked *