Home Banking What is a Credit Balance? – MyFinanceInsurance

What is a Credit Balance? – MyFinanceInsurance

by Shagun Saini
what is a credit balance

In this article, we are going to know what is a credit balance? The credit balance involved in accounting depicts the amount generated from a short sale. But why it is known as credit balance. And which are the credit balance accounts? Let us study this in detail to understand what is a credit balance? And accounts with credit balances.

What is a Credit Balance?

A credit balance represents the amount of money that can be credited to a margin account when a short sale transaction happens and is completed. Therefore, it is the sum of all the funds which are produced by the accomplishment of a short sale.

Further, in accounting and bookkeeping, also you find credit balance at the right side of a general ledger account or say in the subsidiary ledger account. By the credit balance, you get to know the liabilities as it depicts the borrowed funds. Therefore, in accounting, you can define credit balance accounts as a ledger account which is shown at the right side of the T account.

For More Infomation Visit MyFinanceInsurance.

general ledger account

Credit Balance Example

Example 1

Below we have shown a Creditor’s Account, which represents a greater amount of purchases hence the balance c/d is 15,000 which is depicted on the debit side. Here, you will also notice that the credit balance is greater than the debit side balance. Hence, this T account has a credit balance.

ParticularsAmount ( in $ ) Dr ParticularsAmount ( in $ ) Cr
To Cash A/C10,000 By Purchases A/C 25,000
 To Balance c/d15,000------
 Total25,000 Total  25,000

Example 2

ABC company purchased stock on credit amounting to $ 10000. So, the creditors account will be as follows:

Solution:

As a journal entry of goods purchased on credit by ABC company.\

ParticularsAmount ( in $ ) DrAmount ( in $ ) Cr
Purchase Account  Dr.$ 10000---
To Accounts Payable Account---$ 10000
( Being goods purchased on credit )------

Accounts having Credit Balance

There exist some accounts or say examples of credit account that have a credit balance such as follows:

Liability Accounts

Some Liability accounts have credit balance as:

  • Accounts Payable
  • Notes Payable
  • Wages Payable
  • Interest Payable
  • Income Taxes Payable
  • Customer Deposits
  • Deferred Income Taxes, etc.

Equity Accounts

Some equity accounts hold credit balance which are as follows:

  • stockholders’ equity accounts Common Stock
  • Paid-in Capital in Excess of Par Value
  • Retained Earnings and
  • the owner’s equity account

Revenue Accounts and Gain Accounts

Some Revenue accounts and gain accounts hold credit balance which are as follows:

  • Sales Revenues
  • Service Revenues
  • Interest Revenues
  • Gain on Disposal of Equipment
  • Gain from Lawsuit, etc.

Contra-Asset Accounts

Some Contra-asset accounts hold credit balance which are as follows:

  • Accumulated depreciation.
  • Accumulated depletion.
  • Obsolescent inventory reserves.
  • Allowance for doubtful accounts.
  • Trade accounts
  • Discount on notes receivable.

Contra-Expense Accounts

Some Contra-expense accounts hold credit balance. Such as follows:

  • Purchases Discounts
  • Purchases Returns and Allowances and
  • Expenses Reimbursed by Employees

Is a Credit Balance Positive or Negative?

A credit is considered to be a negative as they are the liabilities, equity accounts maintain a negative balance. As, accounts maintaining a negative balance faces increase in their credit balance and decrease in their credit balance. So, as the liability, loans, etc. Makes up the credit balance which is a negative term.

Frequently Asked Questions

  • What happens if you have a credit balance on your credit card?

Your credit card statement shows a credit balance, if the amount exceeds your limit then your statement shows a credit balance, that you need to pay to the credit card issuer company.

  • What is a credit balance refund?

a credit balance refund is the excess of amount you paid on your credit card that the credit card issuer company is liable to pay you and you are liable to get a refund of the amount. As, the money that will come back to you will ultimately reduce down the balance you owed.

  • Is a credit balance positive or negative?

A credit is considered to be a negative as they are the liabilities, equity accounts maintain a negative balance. As, accounts maintaining a negative balance faces increase in their credit balance and decrease in their credit balance. So, as the liability, loans, etc. Makes up the credit balance which is a negative term.

  • What is the difference between debit balance and credit balance?

A Debit account are the ones that increase the asset or expense accounts and on the contrary decrease liability, revenue or equity accounts. Whereas, the credit account are the ones that decrease increase the asset or expense accounts and on the contrary increase the liability, revenue or equity accounts.

Conclusion

A credit balance represents the amount of money that can be credited to a margin account when a short sale transaction happens and is completed. Therefore, it is the sum of all the funds which are produced by the accomplishment of a short sale. By the credit balance, you get to know the liabilities as it depicts the borrowed funds. Therefore, in accounting, the ledger account which is shown at the right side of the T account is the credit account, with a credit balance.

related posts

Leave a Comment