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Bank Balance (Debit/Credit) Can Anyone Help Please?!

Thanks

(edited 11 years ago)

A.A.T.

From the Accounting Equation and trial balance a debit balance indicates assets and expenses where as a credit balance indicates liabilities, revenues and capital.

So since we are talking about assets of cash/bank i.e. money. This would be a debit balance b/d at the start of a new period indicating existing assets of money/ cash which the bank is holding safely (!) for us. Point here we see from "the business" point of view a debit balance. So what is the bank account was a credit balance? what would that highlight?

When 'Susan' looks at the bank statements (not our cashbook or ledger) the same money is shown as a credit balance. Given the above point and the indication a credit balance gives i.e. "an overdraft" users of this information may interpret the information incorrectly.

The reason our debit balance (actual money we own) is shown as a credit balance in our bank statement is to highlight the liability that exists between "us / the business" and the bank. From the bank's view point they have a credit balance on the ledger account to "Susan" i.e. an increase of a liability by the bank statement amount".

Hope this is useful.