25/07/2014
What is a debit balance?
In accounting, a debit balance is the ending amount found on the left side of a general ledger account or subsidiary ledger account.
A debit balance is normal and expected for the following accounts:
Asset accounts such as Cash, Accounts Receivable, Inventory, Prepaid Expenses, Buildings, Equipment, etc. For example, a debit balance in the Cash account indicates a positive amount of cash. (Therefore, a credit balance in Cash indicates a negative amount likely caused by writing checks for more than the amount of money currently on hand.)
Expense accounts and loss accounts including Cost of Goods Sold, Wages Expense, Rent Expense, Interest Expense, Loss of Disposal of Equipment, Loss from Lawsuit, etc. (The debit balances will be transferred to Retained Earnings or to the proprietor's capital account at the end of each accounting year.)
Contra-revenue accounts including Sales Discounts, Sales Returns, etc. (The debit balances in these accounts allow for the reporting of both the gross and net amounts of sales.)
Contra-liability accounts such as Discount on Bonds Payable. (The debit balance allows for the presentation of both the maturity value and the book or carrying value of the bonds.)
Contra-equity accounts such as the owner's drawing account and Treasury Stock. (The debit balance in the drawing account will be closed to the owner's capital account thereby reducing its balance at the end of each year. The debit balance in Treasury Stock serves as a reduction to the total amount of Stockholders' Equity.
