What is Debit Balance?
Debit balance is an amount which states that the total amount of debit entries in a general ledger is more than the total amount of the credit entries.
It is different from debit entry. A debitDebitDebit is an entry in the books of accounts, which either increases the assets or decreases the liabilities. According to the double-entry system, the total debits should always be equal to the total credits. entry is made to record a transaction in the general ledger, e.g., when we purchase an asset, we debit the asset account recording the purchase and credit bank account showing an outflow of money. Whereas, a debit balance is a net amount (Debit minus Credit) in a general ledger after recording all the transactions.
It is generally found in the assets and expenses ledgers, a few examples are stated below,
- Fixed assets A/c’s – When a fixed assetFixed AssetFixed assets are assets that are held for the long term and are not expected to be converted into cash in a short period of time. Plant and machinery, land and buildings, furniture, computers, copyright, and vehicles are all examples. is purchased, it will be recorded as a debit transaction, and later credit entries are made for charging depreciation to the asset. It will leave a net debit balance in the fixed asset account.
- Expense A/c’s – The expense and loss accounts like rent, salary, repair, and maintenance, interest expense, electricity, etc. will always carry a debit balance.
- Investments – Similar to fixed assets, investment purchased will have a debit entry, and later debit balance will be reflected in the investment account.
Debit vs. Credit Balance
In accounting general ledgerAccounting General LedgerA general ledger is a book of accounts that records the everyday business transactions in separate ledger accounts. The entries made in a ledger can be verified by getting a NIL balance on summing up all the ledger account amounts in the trial balance. we can find two types of balances. To find out what balance a ledger reflects, we need to calculate which side of the ledger has a higher balance, i.e., if the debit total is greater than the credit, the ledger has a Debit balance. Similarly, if the credit total is higher than the debit total, it will have a credit balanceCredit BalanceCredit Balance is the capital amount that a company owes to its customers & it is reflected on the right side of the General Ledger Account. Usually, Liability accounts, Revenue accounts, Equity Accounts, Contra-Expense & Contra-Asset accounts tend to have the credit balance. .
To understand in a better way, we can consider the following illustration,
|To Mr. XYZ||7,000||By Repairs||1,000|
|To Dividend Income||3,000||By Rent||6,000|
|By Balance c/d||3,000|
Here as we can see that the debit total is more than the credit total, i.e., the inflow of cash is more than the outflow; therefore, the cash account gives a debit balance of 3,000.
|To Bank (EMI Payment)||48,000||By Bank (Loan from SBI)||400,000|
|By Interest A/C||8,000|
|To Balance c/d||360,000|
Here we can understand that after repayment of the installment of the loan, the credit total is higher than the debit total; therefore, the loan a/c gives credit of Rs. 360,000.
From the above explanation, we can understand that these balances are commonly used terms in accounting, and while reading and understanding financial statementsUnderstanding Financial StatementsFinancial statements are written reports prepared by a company's management to present the company's financial affairs over a given period (quarter, six monthly or yearly). These statements, which include the Balance Sheet, Income Statement, Cash Flows, and Shareholders Equity Statement, must be prepared in accordance with prescribed and standardized accounting standards to ensure uniformity in reporting at all levels., therefore, it is important to understand the meaning of the term which can be concluded simply, i.e.,
if Debit total > Credit Total = Debit Balance and
if Credit total > Debit Total = Credit Balance.
This article has been a guide to what debit balance is and its definition. Here we discuss examples of debit balance along with its difference with a credit balance. You can learn more about financing from the following articles –