Notes #3: The Normal Balance

The basic accounting equation has two sides, namely debit and credit. Each side increases and decreases depending on the transaction.

For example, Cash increases on the debit side, and conversely it decreases on the credit side. A side that increases often will have a positive value and that is called the normal balance. In our example, the Cash account has a normal balance on the debit side, because increases are placed on the debit side.

Another example, Owner’s Equity increase on the credit and decrease on the debit. A positive value is found on the credit, hence the normal balance for Owner’s Equity is credit normal balance.

About these ads

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Follow

Get every new post delivered to your Inbox.

%d bloggers like this: