Credit Account Balances

Regarding credit balances of various accounts, the answer to the following question would solve the problem: “Is the business under an obligation to refund the value either to an outside party or the proprietor or both?” In case the answer is ‘No’ the relevant credit account represents a gain or profit to be transferred to the credit side of the Trading Account or Profit and Loss Account. But if the answer is ‘Yes’ the account indicates a liability and must be shown in the Liabilities and Capital side (or-left-hand side) of the balance sheet.

Thus, all nominal accounts and accounts relating to goods (purchases and sales accounts) appearing in the trial balance are transferred to trading and profit and loss account for the purpose of obtaining the net profit or net loss. The remaining accounts, namely, real accounts (pertaining to property assets) and personal accounts (pertaining to debtors and creditors are just placed in the balance sheet. It may be clarified that Trading and Profit and Loss Account is simply one account which is usually divided into two sections. The first section is called the Trading Account and the second section the Profit and Loss Account. It is headed as:

Trading and Profit and Loss Account For The Year (Accounting Period) Ended On 31st March (or any other last date of the accounting period)19…

For more help in Credit Account Balances click the button below to submit your homework assignment