Which of the following accounts has a normal credit balance?
a. Merchandise Inventory
b. Accounts Receivable
c. Sales
d. Delivery Expense
The correct answer and explanation is :
The correct answer is: c. Sales
Explanation:
In accounting, each account has a normal balance, which is the side (debit or credit) where increases are recorded. Understanding this helps in determining how transactions affect each account.
Let’s briefly review the options provided:
a. Merchandise Inventory
- Type: Asset
- Normal Balance: Debit
- Explanation: Merchandise Inventory represents goods a company holds for resale. As an asset, it increases with a debit and decreases with a credit.
b. Accounts Receivable
- Type: Asset
- Normal Balance: Debit
- Explanation: Accounts Receivable reflects amounts owed by customers. Since it’s an asset, it also increases with a debit.
c. Sales
- Type: Revenue
- Normal Balance: Credit
- Explanation: Sales revenue represents the income earned from selling goods or services. Revenue accounts have a normal credit balance because revenue increases owners’ equity, which itself has a credit balance. Therefore, to record a sale, you credit the Sales account. For example, when a business makes a cash sale of $1,000, it debits Cash (asset increases) and credits Sales (revenue increases).
d. Delivery Expense
- Type: Expense
- Normal Balance: Debit
- Explanation: Delivery Expense is a cost incurred to deliver goods. As an expense, it reduces net income and thus owners’ equity. All expenses have a normal debit balance.
Summary:
Only Sales (option c) has a normal credit balance among the options. All the others—Merchandise Inventory, Accounts Receivable, and Delivery Expense—are accounts that have normal debit balances. Understanding these balances is fundamental for accurate journal entries and financial reporting.