Acct504

normal account balance

Type of balance expected of a particular account based on its balance sheet classification. Normally,  asset and expense accounts have debit balances, and equity, liability, and revenue accounts have  credit balances. Also called normal balance.

NORMAL BALANCE NORMAL BALANCE, in accounting, is the side of an account, whether debit or credit, to which increases to the account are recorded.

Definition Normal balance is the accounting classification of an account. It is part of Double-entry book-keeping technique. An account has either credit (Abbrev. CR) or debit (Abbrev. DR) normal balance. To increase the value of an account with normal balance of credit, one would credit the account. To increase the value of an account with normal balance of debit, one would likewise debit the account. The fundamental accounting equation is the following: Asset = Liability + Shareholder Equity The account on left side of this equation has a normal balance of debit. The accounts on right side of this equation has a normal balance of credit. The normal balance of all other accounts are derived from their relationship with these three accounts.

COMPOSITION OF RETAINED EARNINGS STATEMENT Retained earnings for the beginning of the month Add: Net Income Less: Dividends Retained earnings, (end of month) LEDGER ACCOUNT The entire group of accounts maintained by a company (individual asset accounts, individual liability accounts, individual stockholders’ equity, revenue, and expense accounts). Assets- cash, a/r, advertising supplies, prepaid insurance, office equipment, accumulated depreciation- office equipment Liabilities- notes payable, unearned service revenue (all payables) Stockholders’ Equity-common stock, retained earnings, dividends, income summary Revenue-service revenue Expenses- all expenses RULES OF DEBIT ASSETS- Debits increase Credits decrease LIABILITIES & STOCKHOLDERS’ Credits increase Debits decrease REVENUE RECOGNITION PRINCIPLE requires...