Which Accounts Normally Have Credit Balances?
Contents
Accounts that are considered to have normal credit balances typically include assets, expenses, and equity.
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Accounts that Normally Have Credit Balances
Most people are familiar with the term “credit” in relation to a financial transaction. When you make a purchase with a credit card, for example, you are borrowing money from the card issuer. In the business world, the term “credit” has a slightly different meaning.
Accounts Receivable
Accounts receivable is an account that represents money owed to a company by customers. This account is important because it represents the money that a company is owed and will eventually receive. The amount of money in accounts receivable can fluctuate depending on the amount of sales made by a company. If a company has a lot of sales, the accounts receivable will increase, and if a company has fewer sales, the accounts receivable will decrease. Accounts receivable is usually found on a company’s balance sheet.
Prepaid Expenses
Prepaid expenses are those fees paid in advance for goods or services that will be used in the future. In accounting, this is considered an asset because it provides future economic benefits. Common examples of prepaid expenses include rent, insurance, and office supplies.
When prepaid expenses are incurred, they are recorded as assets on the balance sheet. As the good or service is used, the asset is then debited and the expense is recognized on the income statement.
Prepaid expenses are classified as current assets on the balance sheet because they are expected to be used or converted into cash within one year.
Unearned Revenue
Unearned revenue is income that a company has received but has not yet earned. This type of revenue is reported as a liability on the balance sheet until the company completes the work and delivers the product or service to the customer. Common examples of unearned revenue include gift certificates, prepaid insurance, and annual magazine subscriptions.
Accounts that Normally Have Debit Balances
There are certain types of accounts that are expected to have debit balances. These include asset, expense, and liability accounts. Revenue and equity accounts normally have credit balances.
Accounts Payable
Accounts Payable is an account that keeps track of money owed to suppliers and creditors. This account is a liability because it represents money that the company owes. Accounts Payable normally has a debit balance, meaning that the company owes money to someone.
Salaries Payable
Some of the most common accounts that normally have debit balances include:
-Cash
-Accounts receivable
-Inventory
-Prepaid expenses
-Investments
-Land
On the other hand, some of the most common accounts that normally have credit balances include:
-Salaries payable
-Rent payable
-Interest payable
– Utilities payable
Interest Payable
Interest payable is an account that normally has a debit balance. This means that when the entity records transactions related to interest payable, it will typically debit the account.
