Glossary
Debit and credit balances
Whether an account has a net debit or net credit figure after balancing.
What it means
The side on which a ledger account's balance falls: assets and expenses are debit balances, liabilities, capital and income are credit balances.
Example
The bank account is a debit balance when in funds and a credit balance when overdrawn.
Why it matters
Placing each balance on the correct side is essential for the trial balance to agree.
In practice
After an account is balanced, the side on which the balance is brought down tells you its nature. Assets, expenses and drawings normally carry a debit balance. Liabilities, capital and income normally carry a credit balance. These closing balances are then listed on the correct side of the trial balance.
For example, a bank account overdrawn by RM600 shows a credit balance brought down, because the business now owes the bank. The same account with RM600 in funds shows a debit balance, which is an asset.
A single credit entry does not make an account a credit-balance account. Only the overall total after balancing decides. Reading the balance correctly lets you place each item in the right column of the trial balance. Later it lets you place it on the right side of the statement of financial position.
If you often place balances in the wrong trial balance column, one of our teachers can practise this with you using past-paper ledgers. Book a trial class.
Related terms
Definitions here are general accounting explanations for study. For your board's exact wording, see its official syllabus via Sources.
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