Cambridge IGCSE Accounting(0452)/O Level Principles of Accounts(7110) 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:
|Discount Allowed and Discount Received
|Sales and Purchases
|Rent Receivable and Rent Payable
- 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.