Account Balances

• Occasionally an account that normally has a debit balance, will end up with a credit balance and vice versa.

• This is called an Exceptional Balance

Exceptional Balances

• An Asset has a Credit balance • A Liability has a Debit balance• Capital has a Debit balance

A/R

550 555

5

A/P

850 845

5

Capital

1000 900

100

Examples of Why Exceptional Balances Happen

• Your business overpays an accounts payable• A customer with no account balance returns

unsatisfactory merchandise • A purchaser returns goods for credit to a

supplier with whom there is no account balance.

Exceptional balances do not last long.

They usually return back to normal with regular business activity.

Example: Bookkeeping FOR BELL1. Bell Canada sends Mr. Huff his Bell phone Bill of $56

for telephone services provided in the month of September.

2. Mr. Huff recently overpaid her Bell phone bill which was $56 dollars and instead he paid $65. Bell Canada has not earned the extra $9 so they cannot count that as their revenue.

Dealing with Exceptional Balances

• Double check your accounts – may be an error

• In theory • Assets with exceptional balances becomes

a Liability but stays in the assets section of the Balance Sheet as a negative

• Liabilities with an exceptional balance in theory become an asset, but stay in the liabilities section of the balance sheet as a negative.

Terms – Bank /Cash

• Bank/Cash – Terms are used interchangeably– Usually Cheques or ETF (electronic fund

transfer) is used– Going forward will refer to as BANK– Cash or cheque is used interchangeably but

both mean that an item is paid for a the time it is purchased.

Terms – On Credit

• Buying/Selling on credit– The purchaser is able to delay payment for a

short period of time, usually 30 days– Gives the purchaser time to inspect the goods

and return any defective items.– If a business is buying goods on credit = +

A/P– If a business selling goods on credit = + A/R

Terms – On account

• Purchase on account – not paid for at time of purchase (like buying on credit)

• Sale on account – cash is not received at the time it is sold (like selling on credit)

• Payment on Account – money is paid out to a creditor to decrease amount owed

• Receipt on Account – money is received from a debtor to reduce the amount owed.

• Purchased on Account

• Sold on Account

• Paid on Account

• Received on AccountBank

debit

Accounts Receivable

credit

Accounts Receivable

debit

Capital

credit

Bank

credit

Accounts Payable

debit

An Asset

debit

A/P

credit