Multiple Choice
Why is it important to be extremely careful when recording debits and credits in journal entries?
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2. Transaction Analysis
Journal Entries: Debits and Credits
Multiple Choice
For each of the following accounts, identify the normal balance (debit or credit):Which of the following accounts normally has a credit balance?
A
Prepaid Rent
B
Cash
C
Equipment
D
Accounts Payable
Verified step by step guidance1
Understand the concept of normal balances: In accounting, each account type has a normal balance, which is the side (debit or credit) that increases the account. Assets typically have a debit normal balance, while liabilities and equity typically have a credit normal balance.
Review the account types: Prepaid Rent, Cash, and Equipment are asset accounts, while Accounts Payable is a liability account.
Determine the normal balance for asset accounts: Asset accounts (Prepaid Rent, Cash, Equipment) increase with debits and decrease with credits. Therefore, their normal balance is debit.
Determine the normal balance for liability accounts: Liability accounts (Accounts Payable) increase with credits and decrease with debits. Therefore, their normal balance is credit.
Conclude that Accounts Payable is the account with a normal credit balance, as it is a liability account, while the other accounts listed are assets with normal debit balances.
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