08-03-2007, 09:30 PM
Dear Mr. Bilal Azhar,
Please revisit your query. Your query is wrong in its fundamentals.
Loss carries Debit balance while Profits/Reserves carry Credit balance in the Trial Balance or Balance Sheet.
Check this fundamental and then re-consider your query.
A Credit balance can be transmitted into another credit balance by eliminating or reducing (debiting) its ownself. Likewise, a Debit balance can be transmitted into another debit balance by reducing or eliminating (crediting) its ownslef.
Examples are
When bonus shares are issues the credit balance of reserves or profits is transmitted into another credit balance i.e. Share Capital through following journal entry
..........Reserve (Debit)
.................Ordinary Share Capital (CREDIT)
Likewise, cash is an asset of debit balance and can be converted into another asset say furniture (debit balance) by reducing or crediting its ownself
............Furniture account (Debit)
......................Cash account (Credit)
Now if you see that if LOSSES have the debit balance, these cannot be transmitted into a credit balance. If we pass following journal entry
................Losses (DEBIT)
........................Ordinary share capital (CREDIT)
then it will enhance the losses instead of transmitting or reducing itself. This would be a non-sense to pass such a journal entry and will make no legal basis.
When a balance does not exist, it cannot be transmitted.
Hope you will understand this clarification.
Regards,
Kamran.
Please revisit your query. Your query is wrong in its fundamentals.
Loss carries Debit balance while Profits/Reserves carry Credit balance in the Trial Balance or Balance Sheet.
Check this fundamental and then re-consider your query.
A Credit balance can be transmitted into another credit balance by eliminating or reducing (debiting) its ownself. Likewise, a Debit balance can be transmitted into another debit balance by reducing or eliminating (crediting) its ownslef.
Examples are
When bonus shares are issues the credit balance of reserves or profits is transmitted into another credit balance i.e. Share Capital through following journal entry
..........Reserve (Debit)
.................Ordinary Share Capital (CREDIT)
Likewise, cash is an asset of debit balance and can be converted into another asset say furniture (debit balance) by reducing or crediting its ownself
............Furniture account (Debit)
......................Cash account (Credit)
Now if you see that if LOSSES have the debit balance, these cannot be transmitted into a credit balance. If we pass following journal entry
................Losses (DEBIT)
........................Ordinary share capital (CREDIT)
then it will enhance the losses instead of transmitting or reducing itself. This would be a non-sense to pass such a journal entry and will make no legal basis.
When a balance does not exist, it cannot be transmitted.
Hope you will understand this clarification.
Regards,
Kamran.
