A debit balance is normal and expected for the following accounts:
- Asset accounts such as Cash, Accounts Receivable, Inventory, Prepaid Expenses, Buildings, Equipment, etc. For example, a debit balance in the Cash account indicates a positive amount of cash. (Therefore, a credit balance in Cash indicates a negative amount likely caused by writing checks for more than the amount of money currently on hand.)
- Expense accounts and loss accounts including Cost of Goods Sold, Wages Expense, Rent Expense, Interest Expense, Loss on Disposal of Equipment, Loss from Lawsuit, etc. (The debit balances in these accounts will be transferred to Retained Earnings or to the proprietor's capital account at the end of each accounting year.)
- Contra-revenue accounts including Sales Discounts, Sales Returns, etc. (The debit balances in these accounts allow for the reporting of both the gross and net amounts of sales. These balances will also be transferred to an equity account at the end of each accounting year.)
- Contra-liability accounts such as Discount on Bonds Payable. (This debit balance allows for the presentation of both the maturity value and the book or carrying value of the bonds.)
- Contra-equity accounts such as the owner's drawing account and Treasury Stock. (The debit balance in the drawing account will be closed to the owner's capital account thereby reducing its balance at the end of each year. The debit balance in Treasury Stock serves as a reduction to the total amount of Stockholders' Equity.)
Learn Bookkeeping: Gain unlimited access to our bookkeeping seminar videos, bookkeeping proficiency exams, bookkeeping cheat sheet, visual tutorials, and more when you upgrade to PRO.