What Does Debit Balance In Capital Account Mean

A Debit Balance in Capital Account means that the owners of the business withdraw more than the total capital amount that is invested in the business by the owners or when there is a case of Loss suffered by the business during the accounting period, then capital account shows negative or unfavorable balance. So, now, any exceeded amount will be the Liability of the owners to pay to the business according to Business Entity Concept or Separate Legal Entity Concept. This withdrawal from the business by the owners for personal use is called Drawings that is a Contra Equity Account and it is deducted from the balance of capital account.

There is also a case in which a business suffers a loss during the accounting period, then the resulted figure of capital account is also showed us negative or debit balance.

It is to be noted that if capital account increases we credit it and decreases we debit it according to the Rules of Debit And Credit.

Example 1

For Example if the Opening Capital is Rs. 300000, Capital Introduced is Rs. 50000, Profits is Rs. 300000, Drawings is Rs. 700000, then the resulted figure of capital account is calculated from the below formula:

Closing Capital = Opening Capital + Capital Introduced + Profits    - Drawings

                          =       300000        +            50000          + 250000  -   700000

                          = Rs. (100000)

The ending capital account shows negative balance of Rs. 100000 which is unusual or unfavorable balance for the business. This amount is payable by the owners to the business.

Example 2

If there is loss of Rs. 300000 during the accounting period, then

Ending Capital = Opening Capital + Capital Introduced -   Loss     -  Drawings

                        =        300000         +          50000           - 300000   -   10000

                        = Rs. (40000)

Here Beginning Capital = 300000, Fresh Capital Introduced = Rs. 50000