Accounting for unusual account balances and offsetting

3. What to do with unusual balances in liability or asset accounts

When situations like the two described earlier take place, the accountant needs to investigate what caused the unusual balances (e.g., a debit balance in a liability account or a credit balance in an asset account). Once investigation has been completed and necessary actions have been taken to eliminate such situations in the future (if possible), the accountant needs to reclassify the unusual balances for the current period. If reclassifications are not performed, assets and liabilities on the balance sheet will be presented incorrectly.

Debit Balance in Liability Account

Letís refer back to the situation with a debit balance in accounts payable. Vendor C had a debit balance of $4,000. This balance represents an account receivable, so it should be reclassified into accounts receivable. The following journal entry can be posted:

Account Titles

Debit

Credit

Accounts Receivable

$4,000

 

      Accounts Payable

 

$4,000

This journal entry can be reversed at the beginning of the next period and a new journal entry (if needed) can be posted at the end of the next period.

Credit Balance in Asset Account

The credit balance of Customer B in the amount of $12,970.34 identified in the accounts receivable listing should also be reclassified into accounts payable:

Account Titles

Debit

Credit

Accounts Receivable

$12,970.34

 

      Accounts Payable

 

$12,970.34

This journal entry can be reversed at the beginning of the next period and a new journal entry (if needed) can be posted at the end of the next period.

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