The account of a customer in the sales ledger of Rowan Grocers shows a balance brought down of $265 on the debit side at the start of November. Rowan has su...
Question 1 Report
The account of a customer in the sales ledger of Rowan Grocers shows a balance brought down of $265 on the debit side at the start of November. Rowan has supplied that customer with nothing since September. Which conclusion should the owner draw from this balance?
Answer Details
The sales ledger holds the personal accounts of credit customers. Reading a balance correctly means combining two facts: which side it sits on, and what kind of account it belongs to.
The balance of $265 is brought down on the debit side of an account in the sales ledger. A debit balance on a customer's account is an asset of the business, so the correct conclusion is that the customer still owes Rowan Grocers $265. This amount forms part of the trade receivables shown in the statement of financial position.
Saying Rowan owes the customer would require a credit balance, which is the reverse of what is shown. An overpayment would also produce a credit balance, because the customer would have paid more than was invoiced. If the debt had already been written off, the account would have been credited with $265 and would show no balance at all. The fact that nothing has been supplied since September does not change what the balance means; it only warns the owner that the debt is now old and may need to be reviewed for recoverability.
The general rule is worth memorising: assets and expenses carry debit balances, liabilities, capital and income carry credit balances.
Download The App On Google Playstore
Everything you need to excel in your exams
