Which of the following accounts has a normal debit balance?
a. Sales
b. Interest Revenue
c. Merchandise Inventory
d. Accounts Payable
The Correct Answer and Explanation is :
Correct Answer:
c. Merchandise Inventory
Explanation:
In accounting, accounts are classified into five main categories: Assets, Liabilities, Equity, Revenues, and Expenses. Each type of account has a “normal balance,” which refers to the side (debit or credit) that increases its value.
Understanding Normal Balances:
- Assets (e.g., Cash, Accounts Receivable, Merchandise Inventory) → Normal Debit Balance
- Liabilities (e.g., Accounts Payable, Notes Payable) → Normal Credit Balance
- Equity (e.g., Common Stock, Retained Earnings) → Normal Credit Balance
- Revenues (e.g., Sales, Interest Revenue) → Normal Credit Balance
- Expenses (e.g., Cost of Goods Sold, Rent Expense) → Normal Debit Balance
Now, let’s analyze each option:
- Sales (a.)
- Sales is a revenue account. Since revenue increases equity, it has a normal credit balance.
- Incorrect Answer
- Interest Revenue (b.)
- Interest revenue, like sales, is a revenue account, meaning it also has a normal credit balance.
- Incorrect Answer
- Merchandise Inventory (c.)
- Merchandise Inventory is an asset account because it represents goods a company owns and plans to sell.
- Asset accounts normally have debit balances, as they increase with debits and decrease with credits.
- Correct Answer
- Accounts Payable (d.)
- Accounts Payable is a liability account, representing money owed to suppliers.
- Liability accounts have a normal credit balance, as they increase with credits and decrease with debits.
- Incorrect Answer
Thus, the only account that has a normal debit balance is Merchandise Inventory.