Normally all liabilities account have a credit balance, because we have to pay the liabilities to the outside of company. But it is possible some liabilities account have a debit balance. I can explain, when this situation will happen?
1. Mistake in Our Accounts
For example we have made creditor account. This account should be credit because creditor is our suppliers of goods who sold us their stock on credit. But due to mistake in figures or accounts, this account may show debit balance. When we will correct this mistake, this account will show credit balance. For example, we have big circles of creditors. There are millions of things, we buy daily basis on credit, it may be the chance that sundry creditor will show debit balance due to mistake.
2. Over-Payment
Sometime, we pay excess than what we have to pay to any of our liability. This may be due to future planning. After this, our that liability account will show debit balance. For example, you get credit stock from Johann but you are feeling that prices will increase. So, you have paid $ 1000, you have to pay $ 800. So, this excess $ 200 will be over-payment. So Johann's account is liability account but it will show debit balance because $ 200 is over-payment which either we will adjust by buying more goods or we get return same money. We can take the second example of over-payment of tax. We know Indian tax system is more complex and it is normal trend, people pay more than we they have to pay the tax. When find this, they fill the request of over-payment. Before refund, taxation liability account balance will show debit balance.
3. Provision on Liabilities
There are some provisions like provision for discount on creditors. When we hope of getting discount from creditors, we make its provision. This account shows debit balance. It is contra-liability account.
Related : Basic Debit and Credit Concepts
Category : Debit and Credit
1. Mistake in Our Accounts
For example we have made creditor account. This account should be credit because creditor is our suppliers of goods who sold us their stock on credit. But due to mistake in figures or accounts, this account may show debit balance. When we will correct this mistake, this account will show credit balance. For example, we have big circles of creditors. There are millions of things, we buy daily basis on credit, it may be the chance that sundry creditor will show debit balance due to mistake.
2. Over-Payment
Sometime, we pay excess than what we have to pay to any of our liability. This may be due to future planning. After this, our that liability account will show debit balance. For example, you get credit stock from Johann but you are feeling that prices will increase. So, you have paid $ 1000, you have to pay $ 800. So, this excess $ 200 will be over-payment. So Johann's account is liability account but it will show debit balance because $ 200 is over-payment which either we will adjust by buying more goods or we get return same money. We can take the second example of over-payment of tax. We know Indian tax system is more complex and it is normal trend, people pay more than we they have to pay the tax. When find this, they fill the request of over-payment. Before refund, taxation liability account balance will show debit balance.
3. Provision on Liabilities
There are some provisions like provision for discount on creditors. When we hope of getting discount from creditors, we make its provision. This account shows debit balance. It is contra-liability account.
Related : Basic Debit and Credit Concepts
Category : Debit and Credit
Please explain the third point a bit more 👏
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