Multiple Choice
When a company purchases materials for use in production, which account is debited in the journal entry?
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2. Transaction Analysis
Journal Entries: Debits and Credits
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Which of the following accounts has a normal credit balance under accrual accounting?
A
Accounts Receivable
B
Supplies
C
Unearned Revenue
D
Prepaid Insurance
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 and expenses normally have debit balances, while liabilities, equity, and revenue accounts normally have credit balances.
Identify the nature of each account listed: Accounts Receivable and Supplies are asset accounts, Prepaid Insurance is also an asset account, and Unearned Revenue is a liability account.
Recall that asset accounts (like Accounts Receivable, Supplies, and Prepaid Insurance) normally have debit balances because they represent resources owned by the company.
Recognize that Unearned Revenue is a liability account representing money received before services are performed or goods are delivered, so it normally has a credit balance.
Conclude that among the options, Unearned Revenue is the account with a normal credit balance under accrual accounting.
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