Dangling debit

Dangling debit is a term used for a debit balance without the corresponding credit balance that allows it to be written off. A dangling debit could be the result of an amount that a company pays in the process of acquiring another firm, but is not recorded in the balance sheet as such.

Debit balance refers to the amount an investor owes to a broker. Usually, the debt arises from a purchase of securities on a margin basis, for which the investor is charged interest. The amount owed, which is in turn posted on the margin account, determines the debit balance.

The brokerage sets the conditions for the repayment of the debit balance. Although legislation in the country or state plays an important role in determining these terms, the brokerage firm may set additional conditions. These may be dependent on the investor’s credit rating. It is reasonable to expect that investors with high credit ratings will be given looser conditions and terms, while those with lower ratings will have to make do with greater restrictions.

On the other hand, a company’s credit balance is the amount that is owed to client on his account from an investment company or bank. This may arise from returns in investment, a refund which is due a client, or overpayment.

In a company’s accounting records and financial statements, a dangling debit may be recorded under negative reserves. Otherwise, it is considered a deduction from the company’s equity.

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