Which account typically has a credit balance?

Which account typically has a credit balance?

• A. Accounts Receivable
• B. Prepaid Insurance
• C. Supplies
• D. Accounts Payable

Answer: (D)

Understanding normal balances helps you see how increases and decreases flow in and out of accounts. Assets like Accounts Receivable, Prepaid Insurance, and Supplies normally carry debit balances, because increases are recorded with debits and decreases with credits. Accounts Payable, on the other hand, is a liability—the company owes money to others. Liability accounts typically have credit balances, since credits increase what is owed and debits decrease it. When a payable is created, you credit Accounts Payable and debit the related expense or asset; when you pay it, you debit Accounts Payable and credit Cash. So, of the options, Accounts Payable is the one that typically has a credit balance. The other three are assets and have normal debit balances.

Understanding normal balances helps you see how increases and decreases flow in and out of accounts. Assets like Accounts Receivable, Prepaid Insurance, and Supplies normally carry debit balances, because increases are recorded with debits and decreases with credits.

Accounts Payable, on the other hand, is a liability—the company owes money to others. Liability accounts typically have credit balances, since credits increase what is owed and debits decrease it. When a payable is created, you credit Accounts Payable and debit the related expense or asset; when you pay it, you debit Accounts Payable and credit Cash.

So, of the options, Accounts Payable is the one that typically has a credit balance. The other three are assets and have normal debit balances.