Determining whether an account has a debit or credit balance

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• 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:

• 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.