What is Debit Balance in Accounting? | Push Digits Chartered Accountants

What is Debit Balance in Accounting?

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What is Debit Balance in Accounting?

Debit balance is the balance that occurs on the left side of any account in the general ledger. Asset and expense accounts usually have debit balances. This means any entry on the left side of an asset or expense account (debit entry) leads to an increase in the value of that respective asset or expense account. Contra accounts that contain a debit balance include contra equity account, contra liability account and contra revenue account. 

A debit balance is usually found in general ledgers of assets and expenses, a few examples are mentioned as follows:

Investments: When an entity makes an investment then it records a debit entry in the investment account (as it is an asset account) resulting in the aforementioned account showing a debit balance.

Fixed asset: When an asset of a non-current nature (fixed asset) is purchased then it is recorded on the debit side of the fixed asset account. However, credit entries are made in the fixed asset account when recording an asset’s depreciation. The recording of the aforementioned will result in the fixed asset account having a net debit balance.

Expenditure account: The expenditure and loss accounts like salary, rent, interest, electricity maintenance and repair, etc. will always carry a debit balance at the end of an accounting period.

Debit vs. Credit Balance

In accounting general ledgers we usually find two types of account balances. In order to find what an accounting ledger’s balance reflects, we need to first determine which side of the account ledger has a higher balance, i.e., if the credit total is greater than the debit, the accounting ledger has a credit balance. If the total of the debit side of an account ledger is higher than the total of its credit, the accounting ledger has a credit balance.

In simple words, debit and credit balances are accounting terminologies, and it is important to know the meaning of these terminologies as these help in understanding an entity’s financials.

The terms debit balance and credit balance can be defined as follows:

If Credit total > Debit Total = Credit Balance

If Debit total > Credit Total = Debit Balance.

Example 1

An entity makes a cash payment of $4,000 during its financial period ended December 31, 2021, out of the total amount $3000 relates to office rent while the remaining $1,000 relates to utilities. During the same time, the entity received $8,000 in cash from a customer for providing consultancy services.

The ledger of the entity’s cash account for the period mentioned above would look as follows:

Cash A/c – Ledger
Particulars Debit Credit
Sales $8,000
Office rent $3,000
Utilities $1,000
Balance c/d $4000
Total $8,000 $8,000

 

If we consider the above example then it is clear that the total of the debit side of the cash general account exceeds its credit side by $4,000 and therefore the said account has a closing balance of $4,000.

Example 2

An entity purchases a fixed asset (Laptop) amounting to $3,000 and charges a depreciation of $900 during the financial year ended December 31, 2021.

The ledger of the entity’s fixed asset account for the period mentioned above would look as follows:

Fixed Asset (Laptop) A/c – Ledger
Particulars Debit Credit
Cost $3,000
Depreciation $900
Balance c/d   $2,700
Total $3,000 $3,000

 

If we consider the above example then we can see that the total of the debit side of the fixed asset account exceeds its credit side by $2,700 and therefore the said account has a closing balance of $2,700.

 

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