Definition
The normal balance of an account is the side, debit or credit, on which its balance usually sits. Assets and expenses have normal debit balances; liabilities, equity and revenue have normal credit balances. Contra accounts carry the opposite. A balance on the unexpected side is a signal to investigate the account.
How it works
Normal balances follow from the accounting equation. Accounts on the left (assets, plus expenses that reduce equity) increase with debits, so their balances are normally debits. Accounts on the right (liabilities, equity, revenue) increase with credits.
Reviewing balances against their normal side is one of the fastest checks before closing a month. A credit balance in cash usually means an overdraft or a missing receipt; a debit balance in accounts payable often means a supplier was paid twice or an invoice was never recorded.
Contra accounts are the planned exception: accumulated depreciation carries a credit balance inside assets, and sales returns carry a debit balance inside revenue. They reduce the main account on the statements.
Normal balance by account type
Use this table when reading a trial balance: any account showing a balance in the other column deserves a second look.
| Account type | Increases with | Normal balance |
|---|---|---|
| Assets (cash, receivables, inventory) | Debit | Debit |
| Expenses (rent, salaries, cost of sales) | Debit | Debit |
| Liabilities (payables, loans, VAT payable) | Credit | Credit |
| Equity (share capital, retained earnings) | Credit | Credit |
| Revenue (sales, service income) | Credit | Credit |
| Contra asset (accumulated depreciation) | Credit | Credit |