Determining whether an account has a debit or credit balance

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Determining whether an account has a debit or credit balance

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ZIMSEC O Level Principles of Accounts Notes:Determining whether an account has a debit or credit balance

  • Sometimes in a bid to confuse you during the examination examiners will present you with a jumbled list of balances which might require you to determine whether the accounts should be on the debit side or credit side of the trial balance.
  • At times you might be asked to prepare a Profit and Loss (Income statement) and/or Balance Sheet (Statement of Financial Position) from this jumbled information
  • At other times items such as Purchases and Sales will presented in the same row as shown in the extract below:
Description/DetailsDRCR
Discount Allowed and Discount ReceivedXXXX
Sales and PurchasesXXXX
Rent Receivable and Rent PayableXXXX
  • So which figure is for Sales and which is for Purchases?
  • To unscramble these figure you can use the mnemonic PEA| RLS
  • This stands for Purchases Expenses Assets | Revenue Liabilities and Sales
  • All the items left of | have debit balances for example Rent payable ( an expense), Motor Vehicle ( an Asset) and of course the Purchases Account.
  • All items on the right side of | have a Credit balance for example Rent Receivable ( Revenue), Loan from bank ( liability) and Sales have Credit balances.
  • In addition Provisions have credit balances for example the Provision for Depreciation account.
  • Also you should note that the Sales and Purchases accounts should not be confused with the Sales and Purchases Control Accounts.
  • The Sales control account which is a summary of the debtor’s ledger account has a debit balance since it collates all the trade debtors of the business.
  • The Purchases ledger control account has a credit balance as it is a summary listing of all the trade payable accounts from the Purchases ledger.
  • With your friends/colleagues try to determine whether an account has a debit/ credit balance for example does the Discount Allowed account have a credit or debit balance?

To access more topics go to the Principles of Accounts Notes page.

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By | 2017-07-28T08:28:46+00:00 September 4th, 2015|Notes, Ordinary Level Notes, Principles of Accounts Notes|0 Comments

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He holds an Honours in Accountancy degree from the University of Zimbabwe. He is passionate about technology and its practical application in today’s world.

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