The answer to this question depends on the type of business you operate and the accounting method you use. Generally, though, the following types of accounts have a normal credit balance:
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Accounts with a Normal Credit Balance
The credit side of a ledger account is known as the right side, and the debit side is known as the left side. An account with a normal credit balance is an account where the credit side is the greater side. In other words, the sum of the credit side is greater than the sum of the debit side.
The most common type of account with a normal credit balance is Accounts Receivable. This is the money that is owed to a company by its customers for goods or services that have been provided. Other types of accounts with normal credit balances include Inventory, Unearned Revenue, and Prepaid Expenses.
Inventory is one of the few types of accounts that typically have a credit balance. A credit balance in inventory signifies that a company has more inventory on hand than it currently needs. Companies will often maintain a small level of excess inventory to guard against stock-outs, but large levels of excess inventory tie up working capital and can result in significant write-downs if the inventory becomes obsolete.
Prepaid expenses are those that have been paid in advance and represent a future expense for the company. For example, if you buy insurance for the next year, you would record it as a prepaid expense. When the insurance expires, you would then recognize the expense.
Prepaid expenses are assets on the balance sheet because they represent future benefits to the company (in this case, insurance coverage). The entry to record a prepaid expense is a debit to the Prepaid Expense account and a credit to Cash.
Other Current Assets
Other Current Assets includes:
-Notes receivable (if amount is due within 1 year)
Accounts with a Normal Debit Balance
The following types of accounts typically have a normal debit balance:
Accounts payable is a type of short-term debt that a company owes to its creditors, typically for goods or services that have been received. Accounts payable is usually due within 30 days and is recorded as a liability on a company’s balance sheet.
Wages payable is an example of an account that has a normal debit balance. This means that the account will typically have a negative balance, since the amount of money owed to employees (wages) will be greater than the amount of money available to pay them (the balance in the account).
The Taxes Payable account is a type of current liability account that represents the amount of taxes a company owes to the government for the current year. This account is debited when the company pays its taxes, and it is credited when the company receives a refund from the government.
Interest payable is an account that normally has a credit balance. This means that the account is beneficial to the company because it represents money that the company will receive in the future. The interest payable account is debited when interest expense is recorded and credited when the interest is paid.
Unearned revenue is revenue that has been received by a company but has not yet been earned. This generally occurs when a company receives payment for goods or services that have not yet been provided. Unearned revenue is classified as a liability on a company’s balance sheet because it represents an obligation to provide goods or services in the future.
common examples of unearned revenue include prepaid insurance, prepaid rent, and gift certificates. Companies are required to recognize unearned revenue on their balance sheets in order to comply with generally accepted accounting principles (GAAP).