Accounting for unusual account balances and offsetting
2. Example of a credit balance in an asset account
Now let’s 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 B’s account has a credit balance, Customer B’s 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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