Debit Balance and Credit Balance
A ledger account can have both debit or a credit balance which is determined by which side of the account is greater than the other. Debit balance and credit balance are terms often used in the accounting world hence it is important to understand the distinction and their exact meaning.
Debit Balance
While preparing an account if the debit side is greater than the credit side, the difference is called “Debit Balance”. So, if Debit Side > Credit Side, it is a debit balance.
Cash Account
| To ABCD | 1000 | By ZYX | 500 |
| To XYZ | 2500 | By CBA | 2000 |
| By Balance c/d | 1000 | ||
| Total | 3,500 | Total | 3,500 |
Above example shows the debit balance in the cash account (By Balance c/d) which is shown on the credit side.
Related Topic- Three Golden Rules of Accounting
Credit Balance
When the credit side is greater than the debit side the difference is called “Credit Balance”. So, if Credit Side > Debit Side, it is a credit balance.
Creditor’s Account
| To Cash A/C | 10,000 | By Purchases A/C | 25,000 |
| To Balance c/d | 15,000 | ||
| Total | 25,000 | Total | 25,000 |
Above example shows credit balance in creditor’s account (To Balance c/d) which is shown on the debit side.
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