Misty Reno, a beginning accounting student, believes debit balances are favorable and credit balances are unfavorable. Is Misty correct? Discuss

SOLUTION

Misty is incorrect. A debit balance only means that debit amounts exceed credit amounts in an account. Conversely, a credit balance only means that credit amounts are greater than debit amounts in an account. Thus, a debit or credit balance is neither favorable or unfavorable. For example money owed by a customer to a broker for the sake of funds advanced to purchase securities. Here debit balance in customer account represents that securities purchased successfully and transaction is properly settled. The credit balance represents the proceeds of short sales and specified margin amount require to deposit.