The normal balance for Utilities Expense is: a. Debit b. Credit 2. Increase Consulting Revenue with a. Debit b. Credit 3. Prepaid Rent would appear on the: a. Balance Sheet b. Income Statement c. Statement of Owner’s Equity
The correct answer and explanation is:
Here are the correct answers:
- The normal balance for Utilities Expense is:
a. Debit - Increase Consulting Revenue with:
b. Credit - Prepaid Rent would appear on the:
a. Balance Sheet
Detailed Explanation:
1. Utilities Expense – Normal Balance: Debit
In accounting, expenses (like utilities, rent, wages, etc.) have a normal debit balance. This means that when a company incurs an expense, the amount is recorded on the debit side of the ledger. Expenses reduce a company’s net income and ultimately reduce owner’s equity. Since equity has a normal credit balance, anything that reduces it (like expenses) must have a debit balance. When you pay the utility bill, you debit Utilities Expense and credit Cash or Accounts Payable.
2. Consulting Revenue – Increased with Credit
Revenues (such as Consulting Revenue, Sales Revenue, or Service Revenue) have a normal credit balance. When a business earns income, it increases its revenues, which in turn increases owner’s equity. Since equity increases on the credit side, revenue accounts also increase with a credit. Therefore, if a company provides consulting services and earns income, you credit Consulting Revenue to record the income and debit either Cash or Accounts Receivable.
3. Prepaid Rent – Appears on the Balance Sheet
Prepaid Rent is considered an asset because it represents a future economic benefit (the right to occupy a rented space in the future). It is a type of prepaid expense, which means cash has already been paid for services not yet received. Since assets are reported on the Balance Sheet, Prepaid Rent appears as a current asset. It will be gradually expensed on the Income Statement as the rental period passes, at which point it would reduce Prepaid Rent and increase Rent Expense.
Understanding these classifications is essential for preparing accurate financial statements and maintaining proper records in double-entry bookkeeping.