Multiple Choice
In journal entries, what does a debit to an asset account indicate?
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2. Transaction Analysis
Journal Entries: Debits and Credits
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In financial accounting, all of the following accounts have normal debit balances except:
A
Prepaid Insurance
B
Accounts Receivable
C
Unearned Revenue
D
Salaries Expense
Verified step by step guidance1
Step 1: Understand what a 'normal balance' means in accounting. A normal balance is the side (debit or credit) where increases to an account are recorded and where the account typically has a positive balance.
Step 2: Identify the normal balance for each account type given: Prepaid Insurance is an asset account, which normally has a debit balance; Accounts Receivable is also an asset account with a normal debit balance; Salaries Expense is an expense account, which normally has a debit balance.
Step 3: Recognize that Unearned Revenue is a liability account. Liability accounts normally have a credit balance because they represent obligations the company owes to others.
Step 4: Compare the normal balances of all accounts listed. Since Prepaid Insurance, Accounts Receivable, and Salaries Expense all have normal debit balances, and Unearned Revenue is a liability with a normal credit balance, Unearned Revenue is the exception.
Step 5: Conclude that the account with a normal credit balance among the options is Unearned Revenue, which is why it does not have a normal debit balance like the others.
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