NORMAL BALANCES OF ACCOUNTING ELEMENTS

In accounting principle, accounting elements have this so-called normal balance.  A beginner to bookkeeping must bear in mind the following:

• The ASSETS and EXPENSES Accounting Elements have a DEBIT normal balance.

• The LIABILITIES, EQUITIES and REVENUES Accounts have a CREDIT normal balance.

In mathematics, numbers or integers with the same signs means addition or adding the numbers with the same sign or increases the sum, while, integers with the different signs means subtraction or deducting the numbers or decreases the sum.

In analogy, an account with a debit normal balance increases when a like-sign amount is added, so, when an asset or expense account is debited, the account increases (because an amount is added) and when an asset or expense account is credited the account decreases (because an amount is subtracted).

Likewise, an account with a credit normal balance increases when a like-sign amount is added, so, when a liability, equity or revenue account is credited, the account increases  (because an amount is added) and when a liability, equity or revenue account is debited the account decreases (because an amount is subtracted).

Researched by:

Owner's Equity Elements

Equity is the residual claim against the assets of the business after the total liabilities are deducted.

Alternative terms of Equity:

• Owner's Capital - for sole proprietorship
• Partner's Capital - for partnership
• Owner's Equity or Shareholder's Equity - for corporation

The components of Equity are as follows:

• Capital contribution of owners (initial and additional)
• Withdrawal by owners
• Net Income or Loss
• Prior Period Adjustments

Normal Balance : Credit

Equity accounts have a normal credit balances.

Researched by :

Accounting Equation

Accounting Equation


Business Transactions, its Analysis and Accounting Equation