Debtors are having Debit balance. What is Debtors with Credit Balance?
Well, it is possible while accounting. I haven’t seen this concept in MNC accounting.
In India, the most preferred software is Tally Accounting. Accountants are finalizing the books with this type of balance. And also saw, books are getting audited.
Debtors with Credit balance are presented on the Liability side in the Balance Sheet. The problem is because of Module based accounting is not in place. And the transactions are accounted for through Journal entry is possible.
A normal person, who is looking into Accounts, will never understand whether the particular GL is of a Customer or of a Vendor. Whether the party is a Debtor or a Creditor. Because the Debtors with Credit balance are shown together / clubbed with Creditors on the Liability Side.
Now, how to account for Debtors with Credit balance?
Accounting of Advance Receipt :
The entries must be routed through customers’ accounts through Sales Module. In ERP like Oracle, SAP, GPS, etc. it is module-based accounting, unlike Tally.
The entry should be as below…
1.
Customer Account Dr.
To Advance for Supply / Service
(This is with the amount of Advance to be received against proforma invoice)
2.
Bank / Cash Account Dr.
To Customer Account
(Against receipt of advance)
Now the balance is only in Advance for Supply / Service, which is presented under the same head, on Liability Side.
An Accountant must maintain the schedule of these advances tallying with Trial Balance & present to Business Houses. This will give a perfect understanding of finance to the business house.
Now, where is the balance in the Customer’s account? Therefore, the question of Debtors showing Credit balance will not arise.
After the receipt of an advance and after the supply of Goods / Services, the accounting will be as follows through the Journal module.
Advance for Supply / Service Account Dr.
To Sales / Revenue Account.
Discounts offered after Invoice/rebate is given due to rejection :
Discounts/rebate/Sales return A/c (as the case may be) Dr.
To Customers Account.
In this situation, the Seller / Supplier will issue a Credit Note to Purchaser.
This credit balance will be in books, clubbed with other customers’ balance & the net figure is reported.
Receipts of membership fees :
Current practice –
I saw one more instance like this in a non-profit making organization or in an Education Institute. Where the contributions are received for Membership. The process of granting membership takes time & an Accountant account below entry.
Bank / Cash Account Dr.
To Member account
Since there is no specific treatment, Members account gets treated as a Debtors having Credit balance & reported under the head Loans and Advances in Liability Side. And after granting of membership, the below entry gets accounted for.
Member Account Dr.
To Revenue Account
MNC practice of accounting as Deferred Revenue –
Here, Members are not Debtors but receipts are a Deferred Revenue received, which is to be recognized upon granting of membership. Therefore, the entry should be,
Bank / Cash Account Dr.
To Deferred Revenue (A schedule must be maintained tallying with Trail balance for reporting)
After granting of membership below Journal entry should be accounted for.
Deferred Revenue Account Dr.
To Revenue Account.
This is a difference between an MNC level of Accounting & Local level of Accounting. Wherein management gets the best & detailed report & understand quickly.
