Multiple Choice
In financial accounting, which of the following accounts typically has a normal credit balance?
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2. Transaction Analysis
Journal Entries: Debits and Credits
Multiple Choice
Which of the following accounts typically has a normal debit balance?
A
Accounts Payable
B
Common Stock
C
Accounts Receivable
D
Service Revenue
Verified step by step guidance1
Understand the concept of normal balances: In accounting, each type of account has a normal balance, which is the side (debit or credit) that increases the account. Assets and expenses normally have debit balances, while liabilities, equity, and revenue accounts normally have credit balances.
Identify the nature of each account given: Accounts Payable is a liability account, Common Stock is an equity account, Accounts Receivable is an asset account, and Service Revenue is a revenue account.
Recall that asset accounts, such as Accounts Receivable, typically have a normal debit balance because they represent resources owned by the company.
Recognize that liability accounts like Accounts Payable and equity accounts like Common Stock normally have credit balances, as they represent claims against the company.
Understand that revenue accounts, such as Service Revenue, also normally have credit balances because they increase equity through income.
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