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Multiple Choice
Select the account below that normally has a credit balance.
A
Accounts Payable
B
Prepaid Expenses
C
Equipment
D
Cash
Verified step by step guidance
1
Understand the nature of account balances: In financial accounting, accounts are classified as having either debit or credit balances based on their type. Assets and expenses typically have debit balances, while liabilities, equity, and revenue accounts usually have credit balances.
Analyze each account type: Review the classification of each account provided in the problem: Accounts Payable, Prepaid Expenses, Equipment, and Cash.
Determine the normal balance for Accounts Payable: Accounts Payable is a liability account, and liabilities normally have a credit balance because they represent amounts owed to creditors.
Determine the normal balance for Prepaid Expenses: Prepaid Expenses are an asset account, and assets typically have a debit balance because they represent resources owned by the company.
Determine the normal balance for Equipment and Cash: Equipment is an asset account, and Cash is also an asset account. Both typically have debit balances. Therefore, the account with a normal credit balance is Accounts Payable.