Lessons · Accounting · normal balances
Normal balance: the side each account expects to live on
An account's normal balance is the side of the equation it sits on: assets on the left, liabilities and equity on the right. Expenses follow assets (left); revenue follows equity (right). Left is called debit, right is called credit.
Hone is a place to practise a career, one idea a day. This is one of its lessons, written out in full and free to read without an account.
What it is for
On a trial balance a bank account showing a right-hand balance means the business is overdrawn, or somebody posted something backwards. Either way the wrong-side balance is the flag, and you can only see the flag if you know which side is normal.
How to think about it
Read the balance, then ask which side the account normally lives on. A balance on the wrong side is a question to answer, not a number to accept.
Worked example
Cash: debits 9,000, credits 6,500 → 2,500 on the debit sideAn asset with a left-hand balance. Normal.
Accounts payable: credits 4,000, debits 1,500 → 2,500 on the credit sideA liability with a right-hand balance. Normal.
Sales: credit balance; Rent expense: debit balanceRevenue lives on the right with equity; expenses live on the left.
Cash with a credit balance → overdrawn, or an errorThe one line in this lesson to remember at month-end.
Your turn
Write the side, debit or credit, on which a liability's balance normally sits.
Accounts payable: normal balance on the side
Solve one, graded on the server
The trap
Treating debit as normal for everything. Half the accounts live on the right, and posting a sale on the left because that is where cash went is the commonest first-week error there is.