Question

Explain normal balances. Give three examples of accounts that will normally have a debit balance and three accounts that will normally have a credit balance.

a) Normal balances are used in budgeting; Examples: Utilities, Rent, Insurance.
b) Normal balances indicate the expected side of the account; Examples: Cash, Accounts Receivable, Supplies.
c) Normal balances show the historical performance of accounts; Examples: Salaries Expense, Depreciation Expense, Interest Revenue.
d) Normal balances track the market value of accounts; Examples: Common Stock, Retained Earnings, Dividends.

Answer 1

Normal balances indicate the side of the ledger where increases in the account are recorded, with assets typically having debit balances, and liabilities, equity, and revenue accounts having credit balances.

Step-by-step explanation:

Normal balances indicate the expected side of the ledger for a particular account in double-entry bookkeeping. It refers to the side where increases to the account are recorded. The normal balance for asset accounts such as Cash, Accounts Receivable, and Supplies is a debit balance. Conversely, accounts with a normal credit balance include liability accounts such as Accounts Payable, equity accounts like Common Stock and Retained Earnings, and revenue accounts such as Interest Revenue.