For people who are new to the field of accounting, understanding the normal balance of each account used in the accounting records of an organization or company can be quite challenging. The purpose of determining normal balances is to identify whether an account normally has a debit or credit balance before recording transactions. So, what is an easy way to understand the normal balances of accounts in accounting?
Let's recall the following basic accounting equation:
Asset Accounts:
The position of "ASSETS" in the basic accounting equation is on the left side. This indicates that all accounts classified as ASSETS have a normal DEBIT balance. This means that when the balances of asset accounts increase, they are recorded on the DEBIT side. Conversely, when the balances of asset accounts decrease, they are recorded on the CREDIT side. The following are accounts classified as ASSETS:
List of Asset Accounts: |
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Liability Accounts:
The position of "LIABILITIES" in the basic accounting equation is on the right side. This indicates that all accounts classified as LIABILITIES have a normal CREDIT balance. This means that when the balances of liability accounts increase, they are recorded on the CREDIT side. Conversely, when the balances of liability accounts decrease, they are recorded on the DEBIT side. The following are accounts classified as LIABILITIES:
List of Liability Accounts: |
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Equity Accounts
The position of "EQUITY" in the basic accounting equation is on the right side. However, unlike liability accounts, the determination of normal balances for accounts classified as EQUITY is divided into two categories. Consider the following equation:
Revenue
One of the accounts classified under Equity is revenue. In the basic accounting equation above, the Revenue account is positioned on the right side and has a POSITIVE sign. Therefore, REVENUE accounts have a normal CREDIT balance. This means that when the balance of a Revenue account increases, it is recorded on the CREDIT side, whereas when the balance of a Revenue account decreases, it is recorded on the DEBIT side.
List of Revenue Accounts: |
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Expenses
Expense accounts are also classified under Equity. In the basic accounting equation above, the Expense account is positioned on the right side of the equation BUT has a NEGATIVE sign. This negative sign indicates that the normal balance of Expense accounts is the opposite of the normal balance of Equity accounts. Therefore, EXPENSE accounts have a normal DEBIT balance. This means that when the balance of an Expense account increases, it is recorded on the DEBIT side, whereas when the balance of an Expense account decreases, it is recorded on the CREDIT side.
List of Expense Accounts: |
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Capital
Another account classified under Equity is the Capital account. In the basic accounting equation above, the Capital account is positioned on the right side and has a POSITIVE sign. Therefore, CAPITAL accounts have a normal CREDIT balance. This means that when the balance of a Capital account increases, it is recorded on the CREDIT side, whereas when the balance of a Capital account decreases, it is recorded on the DEBIT side.
List of Capital Accounts: |
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And that's the explanation! Hopefully, this helps you understand the normal balances of accounts in accounting more easily. Keep up the good work and happy studying!
Manggar Wulan Kusuma, S.E., M.Si., Ak.
