Posted in Finance, Accounting and Economics Terms, Total Reads: 346
Definition: Debit Balance
A debit balance is the remaining amount of debt owed to a lender by the borrower. In investing, a debit balance means the cash which a broker lends to an investor's margin account for purchasing securities, and the investor must pay it back into the account before the purchase transaction gets completed.
When buying on margin, investors borrow funds from their brokers add it to their own funds to buy more shares than they would have bought with their own money. The debit amount recorded by the broker in the investor's account interprets the cash cost of the transaction to the investor.
Debit balance is nothing but an amount that is owed, for example, to a lender or a seller. In banking, it is the amount owed by the account holder to the bank when his account is overdrawn. It is the negative cash balance in the checking account with bank. Such account is called as overdrawn. Actually, it is not allowed to have a negative balance. Banks simply refuse to pay any checks presented against the account which will cause it to have a debit balance. Alternatively, the bank can increase the account balance to zero through an OD arrangement.
In accounting, debit balance means the ending amount on the left side of a ledger account. A debit balance is an account balance where there is a positive balance in the left side of the account. Accounts that normally have a debit balance include losses, assets & expenses. Some examples of these accounts are loss on sale of assets account, fixed assets account and wages. Contra accounts that generally have debit balances include the contra revenue, contra liability & contra equity accounts.
Example: the treasury stock account (contra equity).