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Multiple Choice
Which of the following accounts normally has a credit balance?
A
Accounts Payable
B
Equipment
C
Prepaid Rent
D
Cash
Verified step by step guidance
1
Understand the concept of normal account balances: In accounting, accounts are classified into assets, liabilities, equity, revenue, and expenses. Each type of account has a normal balance, which is either a debit or credit. Assets and expenses typically have debit balances, while liabilities, equity, and revenue typically have credit balances.
Analyze the given accounts: Review each account type to determine its classification and normal balance. For example, 'Accounts Payable' is a liability account, 'Equipment' is an asset account, 'Prepaid Rent' is an asset account, and 'Cash' is also an asset account.
Determine the normal balance for each account: Since 'Accounts Payable' is a liability account, its normal balance is a credit. 'Equipment,' 'Prepaid Rent,' and 'Cash' are asset accounts, and their normal balances are debits.
Identify the account with a credit balance: Based on the analysis, the account that normally has a credit balance is 'Accounts Payable,' as it is a liability account.
Conclude the solution: The correct answer is 'Accounts Payable,' as it is the only account among the options that typically has a credit balance.