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.
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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.
| Dwelling Insurance | Homeowners Insurance |
|---|---|
| It addresses the coverage needs of landlords who do not live in the insured property. | It addresses the coverage needs of homeowners who live in the insured property. |
| Here, the repair value is below the minimum coverage limit available. | Here, the repair value is above the minimum coverage limit available. |
| The following coverages are included in dwelling insurance policies: Fire, Lightning, Explosion, Smoke, Vandalism, and more | The following coverages are included in homeowners insurance policies: Dwelling, Personal property, Loss of use, Personal liability, Medical payments to others. |
Example 2
ABC company purchased stock on credit amounting to $ 10000. So, the creditor’s account will be as follows:
Solution:
As a journal entry of goods purchased on credit by ABC company.\
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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 is 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 is 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 balances which is 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 an increase in their credit balance and a decrease in their credit balance. So, as the liability, loans, etc. Makes up the credit balance which is a negative term.
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FAQ
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 an excess of the 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 an increase in their credit balance and a 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 is the one that increases the asset or expense accounts and on the contrary decreases 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.
What Does In Credit Balance Mean?
If you have a credit balance, it means that you have paid us back more than you borrowed, and we owe you money. This can happen if you’ve received a refund or made a payment which puts your account balance in credit.
Is A Credit Balance What You Owe?
A credit card balance is the amount of credit you’ve used on your card, which includes charges made, balances transferred and cash advances (like ATM withdrawals). You can think of it as the amount of money owed back to the credit card issuer. If you don’t owe a balance, it will appear as zero.
What Is An Example Of A Credit Balance?
Credit Balance Example
The margin requirement of 150% means that the investor has to deposit 50% x $36,000 = $18,000 as initial margin into the margin account for a total credit balance of $18,000 + $36,000 = $54,000.
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.
What does credit balance mean
What does a credit balance mean?