Definition of Credit Balance
In accounting and bookkeeping, a credit balance is the ending amount found on the right side of a general ledger account or subsidiary ledger account.
Examples of Credit Balances
A credit balance is normal and expected for the following accounts:
- Liability accounts such as Accounts Payable, Notes Payable, Wages Payable, Interest Payable, Income Taxes Payable, Customer Deposits, Deferred Income Taxes, etc. Hence, a credit balance in Accounts Payable indicates the amount owed to vendors. (If a liability account would have a debit balance it indicates that the company has paid more than the amount owed, has made an incorrect entry, etc.)
- Equity accounts including the stockholders’ equity accounts Common Stock, Paid-in Capital in Excess of Par Value, Retained Earnings, and the owner’s equity account M. Smith, Capital
- Revenue accounts and gain accounts such as Sales Revenues, Service Revenues, Interest Revenues, Gain on Disposal of Equipment, Gain from Lawsuit, and many others
- Contra-asset accounts including Allowance for Doubtful Accounts and Accumulated Depreciation. These credit balances allow for the reporting of both the gross and net amounts for accounts receivable and for property, plant and equipment
- Contra-expense accounts such as Purchases Discounts, Purchases Returns and Allowances, and Expenses Reimbursed by Employees. The credit balances in these accounts allow the company to report both the gross and net amounts.
