Multiple Choice
Does the Common Stock account typically have a normal credit balance in the accounting equation?
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2. Transaction Analysis
Journal Entries: Debits and Credits
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Which of the following accounts normally has a credit balance under the debit-credit rules of financial accounting?
A
Equipment
B
Accounts Payable
C
Prepaid Insurance
D
Accounts Receivable
Verified step by step guidance1
Understand the basic debit and credit rules: Assets and expenses normally have debit balances, while liabilities, equity, and revenue accounts normally have credit balances.
Identify the nature of each account given: Equipment is an asset, Prepaid Insurance is an asset, Accounts Receivable is an asset, and Accounts Payable is a liability.
Recall that asset accounts (Equipment, Prepaid Insurance, Accounts Receivable) normally have debit balances because they represent resources owned by the company.
Recognize that liability accounts (such as Accounts Payable) normally have credit balances because they represent obligations the company owes to others.
Conclude that among the options, Accounts Payable is the account that normally has a credit balance under the debit-credit rules.
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