Dangling Debit

Just like a “dangling conversation” in accounting, debit balances must be equal to the credit balances in journal entries.

For example, when your customer pays your invoice, you would debit cash and credit accounts receivable. However, when a company acquires another company and purchases their “goodwill” (an intangible asset that includes the brand reputation, customer base, and patents), there is a debit entry...but no entry on the credit side. This creates a dangling debit.

However, the goodwill value is included in the financial statements as a deduction from the equity of the company.