Accounting for unusual account balances and offsetting

2. Example of a credit balance in an asset account

Now lets examine a situation when an asset account has a credit balance. Suppose that at the same month-end the accountant generated an accounts receivable listing (e.g., subledger of an asset account). The listing shows all customers and their balances:

#

Customer

Balance

1

Customer A

$ 9,209.02

2

Customer B

(12,970.34)

3

Customer C

49,012.00

26

Customer Z

10,000.00

 

Total accounts receivable

$ 398,203.23

Customer B has a balance which is opposite in sign compared to other customer balances. In this instance, because this is an accounts receivable listing, all shown customers have debit balances and Customer B has a credit balance. In effect, because Customer Bs account has a credit balance, Customer Bs balance represents an account payable.

There may be multiple reasons why Customer B has a credit balance. For example, in tough economic times the company can ask some customers to make deposits for future product deliveries. So, the company may have asked Customer B to pay in advance for a shipment that would take place next month. When the company received the advance payment, the company recorded it in accounts receivable as a credit balance.

Credit balances in asset accounts should not be confused with contra-asset accounts. Contra-asset accounts are recorded in the assets section of the balance sheet as reductions to related asset accounts. Contra-asset accounts normally have credit balances. A good example of a contra-asset account is accumulated depreciation. Accumulated depreciation is deducted from the historical cost of fixed assets when they are presented on the balance sheet.

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