Multiple Choice
If a company wants to change how its employees are compensated, which type of accounting would be most directly involved in analyzing the financial impact of this decision?
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1. Introduction to Accounting
Types of Accounting
Multiple Choice
Which of the following accounts typically has a normal credit balance?
A
Service Revenue
B
Prepaid Insurance
C
Cash
D
Supplies Expense
Verified step by step guidance1
Understand the concept of normal balances: In accounting, accounts are classified as either having a normal debit balance or a normal credit balance. Assets, expenses, and dividends typically have normal debit balances, while liabilities, revenues, and equity accounts typically have normal credit balances.
Analyze each account type: Service Revenue is a revenue account, Prepaid Insurance is an asset account, Cash is an asset account, and Supplies Expense is an expense account.
Recall the normal balance rules: Revenue accounts, such as Service Revenue, have a normal credit balance because they increase equity. Asset accounts, such as Prepaid Insurance and Cash, have normal debit balances because they represent resources owned by the company. Expense accounts, such as Supplies Expense, have normal debit balances because they decrease equity.
Determine which account matches the normal credit balance rule: Based on the analysis, Service Revenue is the account that typically has a normal credit balance.
Conclude the reasoning: Service Revenue is the correct answer because it aligns with the normal credit balance rule for revenue accounts, while the other accounts (Prepaid Insurance, Cash, and Supplies Expense) have normal debit balances.
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