ZIMSEC O Level Principles of Accounts 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||XX||XX|
|Sales and Purchases||XX||XX|
|Rent Receivable and Rent Payable||XX||XX|
- 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.
Quick NetOne, Telecel, Africom, And Econet Airtime Recharge
If anything goes wrong, click here to enter your query.