Double Entry Accounting Quiz

Normal Balances Quiz (True or False Questions with Answers)

19/06/2026 40 min read
Account Type Normal Balance
Assets Debit
Liabilities Credit
Equity Credit
Revenues Credit
Expenses Debit
Dividends/Drawings Debit

Normal Balances Quiz: 50 True or False Questions with Answers and Detailed Explanations

📑 table of contents

  1. Question 1
  2. Question 2
  3. Question 3
  4. Question 4
  5. Question 5
  6. Question 6
  7. Question 7
  8. Question 8
  9. Question 9
  10. Question 10
  11. Question 11
  12. Question 12
  13. Question 13
  14. Question 14
  15. Question 15
  16. Question 16
  17. Question 17
  18. Question 18
  19. Question 19
  20. Question 20
  21. Question 21
  22. Question 22
  23. Question 23
  24. Question 24
  25. Question 25
  26. Question 26
  27. Question 27
  28. Question 28
  29. Question 29
  30. Question 30
  31. Question 31
  32. Question 32
  33. Question 33
  34. Question 34
  35. Question 35
  36. Question 36
  37. Question 37
  38. Question 38
  39. Question 39
  40. Question 40
  41. Question 41
  42. Question 42
  43. Question 43
  44. Question 44
  45. Question 45
  46. Question 46
  47. Question 47
  48. Question 48
  49. Question 49
  50. Question 50
  51. Understanding Normal Balances: A Quick Review
  52. Quiz Questions
  53. Section 1: Fundamental Rules of Normal Balances
  54. Section 2: Asset Accounts
  55. Section 3: Contra-Asset Accounts
  56. Section 4: Liability Accounts
  57. Section 5: Contra-Liability & Adjunct Accounts
  58. Section 6: Equity Accounts
  59. Section 7: Contra-Equity Accounts
  60. Section 8: Revenue Accounts
  61. Section 9: Contra-Revenue Accounts
  62. Section 10: Expense Accounts

Question 1

True or False: Asset accounts normally have debit balances.

✅ Answer: True

Explanation: Assets represent resources owned by a business, such as cash, inventory, and equipment. Asset accounts increase with debits and decrease with credits, so their normal balance is a debit balance.

Question 2

True or False: Liability accounts normally have debit balances.

❌ Answer: False

Explanation: Liabilities represent obligations owed to others. Liability accounts increase with credits and decrease with debits, so their normal balance is a credit balance.

Question 3

True or False: Accounts Receivable normally has a debit balance.

✅ Answer: True

Explanation: Accounts Receivable is an asset account because it represents money owed to the business by customers. Therefore, its normal balance is a debit.

Question 4

True or False: Accounts Payable normally has a credit balance.

✅ Answer: True

Explanation: Accounts Payable is a liability account representing amounts owed to suppliers. Liabilities normally carry credit balances.

Question 5

True or False: Revenue accounts normally have debit balances.

❌ Answer: False

Explanation: Revenue accounts increase owners’ equity and therefore normally have credit balances.

Question 6

True or False: Expense accounts normally have debit balances.

✅ Answer: True

Explanation: Expenses reduce net income and equity. They increase with debits and therefore normally carry debit balances.

Question 7

True or False: Cash normally has a credit balance.

❌ Answer: False

Explanation: Cash is an asset account and normally has a debit balance.

Question 8

True or False: Common Stock normally has a credit balance.

✅ Answer: True

Explanation: Common Stock is an equity account. Equity accounts normally increase with credits.

Question 9

True or False: Inventory normally has a debit balance.

✅ Answer: True

Explanation: Inventory is an asset account and therefore has a normal debit balance.

Question 10

True or False: Unearned Revenue normally has a debit balance.

❌ Answer: False

Explanation: Unearned Revenue is a liability because the company owes goods or services to customers. It normally has a credit balance.

Question 11

True or False: Retained Earnings normally has a credit balance.

✅ Answer: True

Explanation: Retained Earnings is part of shareholders’ equity and therefore carries a normal credit balance.

Question 12

True or False: Salaries Expense normally has a credit balance.

❌ Answer: False

Explanation: Salaries Expense is an expense account and expenses normally have debit balances.

Question 13

True or False: Land normally has a debit balance.

✅ Answer: True

Explanation: Land is a long-term asset account, and all asset accounts normally have debit balances.

Question 14

True or False: Notes Payable normally has a credit balance.

✅ Answer: True

Explanation: Notes Payable is a liability account and therefore has a normal credit balance.

Question 15

True or False: Service Revenue normally has a credit balance.

✅ Answer: True

Explanation: Revenue accounts increase equity and are increased by credits.

Question 16

True or False: Dividends normally have a credit balance.

❌ Answer: False

Explanation: Dividends reduce retained earnings and normally have debit balances.

Question 17

True or False: Equipment normally has a debit balance.

✅ Answer: True

Explanation: Equipment is classified as an asset and therefore has a normal debit balance.

Question 18

True or False: Supplies Expense normally has a debit balance.

✅ Answer: True

Explanation: Supplies Expense is an expense account and expenses normally increase with debits.

Question 19

True or False: Prepaid Insurance normally has a credit balance.

❌ Answer: False

Explanation: Prepaid Insurance is an asset account representing future benefits and normally has a debit balance.

Question 20

True or False: Liabilities increase with credits.

✅ Answer: True

Explanation: Liability accounts are increased by credit entries and decreased by debit entries.

Question 21

True or False: Assets increase with debits.

✅ Answer: True

Explanation: This is one of the fundamental rules of double-entry accounting.

Question 22

True or False: Revenue accounts increase with debits.

❌ Answer: False

Explanation: Revenue accounts increase with credits, not debits.

Question 23

True or False: Expenses decrease with credits.

✅ Answer: True

Explanation: Expense accounts normally increase with debits and decrease with credits.

Question 24

True or False: Equity accounts normally have credit balances.

✅ Answer: True

Explanation: Equity increases through owner investments and profits, both recorded with credits.

Question 25

True or False: Accounts Receivable is a liability account.

❌ Answer: False

Explanation: Accounts Receivable is an asset because it represents future cash inflows from customers.

Question 26

True or False: Accounts Payable is a liability account.

✅ Answer: True

Explanation: It represents obligations owed to suppliers and creditors.

Question 27

True or False: Rent Expense normally has a debit balance.

✅ Answer: True

Explanation: Rent Expense is an operating expense and therefore carries a debit balance.

Question 28

True or False: Cash is increased by a debit entry.

✅ Answer: True

Explanation: Since Cash is an asset, debits increase the account.

Question 29

True or False: Revenue accounts reduce owner’s equity.

❌ Answer: False

Explanation: Revenues increase owner’s equity because they contribute to profit.

Question 30

True or False: Expense accounts reduce owner’s equity.

✅ Answer: True

Explanation: Expenses reduce net income, which ultimately reduces retained earnings and equity.

Question 31

True or False: Inventory is classified as an asset.

✅ Answer: True

Explanation: Inventory represents goods held for sale and is therefore an asset.

Question 32

True or False: A credit entry always indicates an increase.

❌ Answer: False

Explanation: Whether a credit increases or decreases an account depends on the account type.

Question 33

True or False: Asset accounts are decreased by credits.

✅ Answer: True

Explanation: Credits reduce asset account balances.

Question 34

True or False: Liability accounts are decreased by debits.

✅ Answer: True

Explanation: Debits reduce liability balances.

Question 35

True or False: Common Stock is an asset account.

❌ Answer: False

Explanation: Common Stock is an equity account, not an asset.

Question 36

True or False: Unearned Revenue is a liability.

✅ Answer: True

Explanation: The business owes products or services to customers who paid in advance.

Question 37

True or False: Advertising Expense normally has a debit balance.

✅ Answer: True

Explanation: Advertising Expense is an operating expense and therefore has a normal debit balance.

Question 38

True or False: Retained Earnings is part of equity.

✅ Answer: True

Explanation: Retained Earnings represents accumulated profits not distributed as dividends.

Question 39

True or False: Notes Payable normally has a debit balance.

❌ Answer: False

Explanation: Notes Payable is a liability and normally carries a credit balance.

Question 40

True or False: Revenue accounts normally have credit balances.

✅ Answer: True

Explanation: Revenues increase equity and therefore have normal credit balances.

Question 41

True or False: Dividends increase owner’s equity.

❌ Answer: False

Explanation: Dividends reduce retained earnings and owner’s equity.

Question 42

True or False: Prepaid Rent normally has a debit balance.

✅ Answer: True

Explanation: Prepaid Rent is an asset until the rent benefit is consumed.

Question 43

True or False: Supplies normally has a debit balance.

✅ Answer: True

Explanation: Supplies is an asset account before being used in operations.

Question 44

True or False: Accounts Payable increases with debits.

❌ Answer: False

Explanation: Accounts Payable increases with credits because it is a liability.

Question 45

True or False: Service Revenue increases with credits.

✅ Answer: True

Explanation: Revenue accounts are increased by credit entries.

Question 46

True or False: Expenses increase with credits.

❌ Answer: False

Explanation: Expenses increase with debits and decrease with credits.

Question 47

True or False: Equipment is reported as an asset on the balance sheet.

✅ Answer: True

Explanation: Equipment is a long-term tangible asset used in business operations.

Question 48

True or False: Liabilities normally have credit balances.

✅ Answer: True

Explanation: Credit balances represent obligations owed by the business.

Question 49

True or False: Assets normally have debit balances.

✅ Answer: True

Explanation: This is one of the basic accounting rules and is essential for understanding normal balances.

Question 50

True or False: The normal balance of an account is the side where increases are recorded.

✅ Answer: True

Explanation: The normal balance of an account refers to the side (debit or credit) that is used to record increases in that account.

Normal Balances Quiz

In double-entry bookkeeping, theNormal Balance is the side of the account (Debit or Credit) where an increase is recorded. Understanding normal balances is the foundation of accounting, dictated by the fundamental accounting equation:

$$\text{Assets} = \text{Liabilities} + \text{Equity}$$

Test your knowledge with these 50 True/False questions.

Questions 1–10: Asset Accounts

  1. True or False: The normal balance for Cash is a debit.

    • Answer: True

    • Explanation: Cash is an asset account. Assets are on the left side of the accounting equation, so they increase with a debit and have a normal debit balance.

  2. True or False: Accounts Receivable increases with a credit entry.

    • Answer: False

    • Explanation: Accounts Receivable is an asset representing money owed by customers. Because it is an asset, it increases with a debit, not a credit.

  3. True or False: Inventory has a normal debit balance.

    • Answer: True

    • Explanation: Inventory is a tangible asset owned by the business to be sold to customers. All standard asset accounts carry a normal debit balance.

  4. True or False: Prepaid Insurance has a normal credit balance because it represents an expense paid in advance.

    • Answer: False

    • Explanation: Although it has “insurance” in the name, Prepaid Insurance is an asset because it provides a future economic benefit. Therefore, its normal balance is a debit.

  5. True or False: Equipment increases with a debit and decreases with a credit.

    • Answer: True

    • Explanation: Equipment is a long-term (fixed) asset. Assets increase on the debit side and decrease on the credit side.

  6. True or False: Land has a normal credit balance.

    • Answer: False

    • Explanation: Land is a permanent asset. Like all assets, its normal balance is a debit.

  7. True or False: Accumulate Depreciation is an asset account with a normal debit balance.

    • Answer: False

    • Explanation: Accumulated Depreciation is acontra-asset account. It is linked to an asset but operates with the opposite balance to reduce the asset’s book value. Therefore, its normal balance is a credit.

  8. True or False: Allowance for Doubtful Accounts has a normal credit balance.

    • Answer: True

    • Explanation: This is a contra-asset account paired with Accounts Receivable. Because it reduces the value of accounts receivable, its normal balance is a credit.

  9. True or False: Supplies is an asset account with a normal debit balance.

    • Answer: True

    • Explanation: Unused office or shop supplies are assets until they are consumed, meaning they maintain a normal debit balance.

  10. True or False: Patents and Trademarks have normal credit balances because they are intangible.

    • Answer: False

    • Explanation: Intangible assets are still assets. They provide future value to the company, so they carry a normal debit balance.

Questions 11–20: Liability Accounts

  1. True or False: Accounts Payable has a normal credit balance.

    • Answer: True

    • Explanation: Accounts Payable is a liability (money owed to suppliers). Liabilities are on the right side of the accounting equation, meaning they increase with a credit and hold a normal credit balance.

  2. True or False: Notes Payable decreases with a debit entry.

    • Answer: True

    • Explanation: Since Notes Payable is a liability with a normal credit balance, making a payment reduces the liability via a debit entry.

  3. True or False: Unearned Revenue has a normal debit balance because it contains the word “Revenue”.

    • Answer: False

    • Explanation: Unearned Revenue is a liability. It represents an obligation to perform services or deliver goods in the future because the customer paid in advance. It has a normal credit balance.

  4. True or False: Salaries Payable increases with a credit.

    • Answer: True

    • Explanation: Salaries Payable is a liability representing wages owed to employees. Liabilities always increase with a credit entry.

  5. True or False: Interest Payable has a normal debit balance.

    • Answer: False

    • Explanation: Interest Payable is an obligation to pay interest in the future, making it a liability with a normal credit balance.

  6. True or False: Taxes Payable has a normal credit balance.

    • Answer: True

    • Explanation: Any account ending in “Payable” is a liability, which inherently carries a normal credit balance.

  7. True or False: A debit to Accounts Payable increases the amount your business owes.

    • Answer: False

    • Explanation: Debiting a liability account reduces its balance. To increase Accounts Payable, you must credit it.

  8. True or False: Bonds Payable is a long-term liability with a normal credit balance.

    • Answer: True

    • Explanation: Bonds Payable represents long-term debt issued to investors. As a liability, its normal balance is a credit.

  9. True or False: Discount on Bonds Payable has a normal credit balance.

    • Answer: False

    • Explanation: Discount on Bonds Payable is acontra-liability account. Because it reduces the carrying value of Bonds Payable, it carries the opposite normal balance of a liability, which is a debit.

  10. True or False: Premium on Bonds Payable has a normal credit balance.

    • Answer: True

    • Explanation: Premium on Bonds Payable is anadjunct liability account that adds to the total value of Bonds Payable. Because it increases the liability account, it shares the same normal credit balance.

Questions 21–30: Equity Accounts

  1. True or False: Common Stock has a normal credit balance.

    • Answer: True

    • Explanation: Common Stock represents equity invested by shareholders. Equity is on the right side of the accounting equation, giving it a normal credit balance.

  2. True or False: Retained Earnings decreases with a credit entry.

    • Answer: False

    • Explanation: Retained Earnings is an equity account that tracks accumulated net income. It increases with a credit and decreases with a debit.

  3. True or False: The Dividends account has a normal debit balance.

    • Answer: True

    • Explanation: Dividends represent a distribution of earnings to shareholders, which reduces total Equity. Therefore, Dividends is acontra-equity account with a normal debit balance.

  4. True or False: Owner’s Capital (in a sole proprietorship) has a normal debit balance.

    • Answer: False

    • Explanation: Owner’s Capital represents the owner’s residual equity stake in the business, carrying a normal credit balance.

  5. True or False: Owner’s Drawings (or Withdrawals) increases with a debit entry.

    • Answer: True

    • Explanation: Like Dividends, Owner’s Drawings reduce equity. Since equity decreases with a debit, the Drawings account has a normal debit balance.

  6. True or False: Paid-in Capital in Excess of Par has a normal credit balance.

    • Answer: True

    • Explanation: This account tracks the premium paid by investors for stock above its par value. It is a core component of equity and carries a normal credit balance.

  7. True or False: Treasury Stock is an equity account with a normal credit balance.

    • Answer: False

    • Explanation: Treasury Stock represents shares that a company has bought back from investors. Because it reduces total outstanding equity, it is acontra-equity account with a normal debit balance.

  8. True or False: Revenues ultimately increase Retained Earnings, which aligns with a normal credit balance.

    • Answer: True

    • Explanation: Revenue increases net income, which flows into Retained Earnings (Equity). Therefore, revenue accounts naturally carry credit balances.

  9. True or False: Expenses ultimately increase equity, giving them a normal credit balance.

    • Answer: False

    • Explanation: Expenses reduce net income, which reduces equity. Because they have a negative effect on equity, expense accounts have a normal debit balance.

  10. True or False: A debit entry to the Common Stock account indicates that the company issued more shares.

    • Answer: False

    • Explanation: Issuing more shares increases equity, requiring a credit entry to Common Stock. A debit would mean a reduction in that equity pool.

Questions 31–40: Revenue and Expense Accounts

  1. True or False: Sales Revenue has a normal credit balance.

    • Answer: True

    • Explanation: Revenue accounts track inflows that expand equity. Equity increases with a credit, so Sales Revenue has a normal credit balance.

  2. True or False: Service Revenue decreases with a debit entry.

    • Answer: True

    • Explanation: Since Service Revenue has a normal credit balance, any correction, adjustment, or closing entry that reduces it requires a debit.

  3. True or False: Rent Expense has a normal credit balance.

    • Answer: False

    • Explanation: Expenses reflect costs incurred to generate revenue, reducing equity. To track these reductions, expenses carry a normal debit balance.

  4. True or False: Salaries Expense increases with a debit entry.

    • Answer: True

    • Explanation: All standard operating expenses increase on the debit side.

  5. True or False: Sales Returns and Allowances has a normal credit balance because it is a revenue-related account.

    • Answer: False

    • Explanation: Sales Returns and Allowances is acontra-revenue account. It tracks deductions from total sales, giving it the opposite balance of revenue: a normal debit balance.

  6. True or False: Sales Discounts has a normal debit balance.

    • Answer: True

    • Explanation: Like Sales Returns, a Sales Discount reduces gross revenue. It is a contra-revenue account with a normal debit balance.

  7. True or False: Cost of Goods Sold (COGS) has a normal debit balance.

    • Answer: True

    • Explanation: COGS is the direct expense associated with selling inventory. As an expense account, its normal balance is a debit.

  8. True or False: Utilities Expense has a normal credit balance.

    • Answer: False

    • Explanation: Utilities Expense tracks a utility cost consumption, which reduces owner equity. Therefore, it maintains a normal debit balance.

  9. True or False: Gain on Sale of Assets has a normal credit balance.

    • Answer: True

    • Explanation: Gains function similarly to revenue because they increase overall net income and equity. Thus, they have a normal credit balance.

  10. True or False: Loss on Sale of Equipment has a normal debit balance.

    • Answer: True

    • Explanation: Losses function like expenses because they reduce net income and equity. Therefore, they carry a normal debit balance.

Questions 41–50: Comprehensive & General Rules

  1. True or False: An account’s “normal balance” is always the side that decreases the account.

    • Answer: False

    • Explanation: The normal balance is defined as the side of the account where an entry increases the balance.

  2. True or False: Every business transaction must touch at least one debit account and one credit account.

    • Answer: True

    • Explanation: This is the baseline rule of double-entry accounting. Total debits must always equal total credits for every single journal entry.

  3. True or False: The acronym “DEAD” helps remember that Debits increase Expenses, Assets, and Dividends.

    • Answer: True

    • Explanation: Debit increases Expenses, Assets, and Dividends. This is a highly effective accounting mnemonic device.

  4. True or False: The acronym “CRLI” (or CLR) helps remember that Credits increase Liabilities, Revenue, and Income/Equity.

    • Answer: True

    • Explanation: Credit increases Liabilities, Revenue, and Equity accounts.

  5. True or False: If a trial balance matches, it proves that no entries were posted to the wrong normal balances.

    • Answer: False

    • Explanation: A trial balance only proves that total debits equal total credits. If you mistakenly debited Rent Expense instead of Salaries Expense, the trial balance will still balance because the debit amount itself was recorded correctly.

  6. True or False: Contra accounts always carry the opposite normal balance of their companion primary accounts.

    • Answer: True

    • Explanation: By definition, a contra account exists to offset its primary companion account, meaning its normal balance will always be inverted.

  7. True or False: Temporary accounts (Revenues, Expenses, Dividends) begin each fiscal year with their normal balance carried forward from the previous year.

    • Answer: False

    • Explanation: Temporary accounts are closed out to zero at the end of every fiscal year into Retained Earnings. Only permanent balance sheet accounts carry balances forward.

  8. True or False: If an asset account has a credit balance, it is experiencing an abnormal balance state.

    • Answer: True

    • Explanation: Assets have normal debit balances. A credit balance in an asset account (like an overdrawn bank account showing negative cash) is an irregular or abnormal balance.

  9. True or False: When a business pays off a bank loan, the liability account is credited.

    • Answer: False

    • Explanation: Paying off a loan reduces the liability. Because liabilities have a normal credit balance, you must debit the account to show a reduction.

  10. True or False: Dividends and Expenses share the same normal balance side as Assets.

    • Answer: True

    • Explanation: Assets, Expenses, and Dividends all increase on the left side of the ledger via debit entries.

 

 

Normal Balances True/False Quiz: Sharpen Your Accounting Skills

Welcome to the Normal Balances True/False Quiz! A solid grasp of normal balances is crucial for anyone studying or practicing accounting. This quiz challenges your understanding of whether various account types typically carry a debit or credit balance, and how transactions affect them.
Each statement below requires you to determine if it’s True or False, followed by a detailed explanation to clarify the underlying accounting principles. Let’s begin!

Understanding Normal Balances: A Quick Review

Before you tackle the quiz, here’s a brief recap of the fundamental rules for normal balances:
•Assets: Have adebit normal balance. They increase with debits and decrease with credits.
•Expenses: Have adebit normal balance. They increase with debits and decrease with credits.
•Dividends/Drawings: Have adebit normal balance. They increase with debits and decrease with credits.
•Liabilities: Have acredit normal balance. They increase with credits and decrease with debits.
•Equity (Owner’s Capital/Common Stock/Retained Earnings): Have acredit normal balance. They increase with credits and decrease with debits.
•Revenue: Have acredit normal balance. They increase with credits and decrease with debits.
Remember that contra accounts (e.g., Accumulated Depreciation, Sales Returns and Allowances) will have a normal balance opposite to the main account they modify.

Quiz Questions

Questions 1-5

Question 1: Asset accounts normally have a debit balance. (True/False)
Correct Answer: True
Explanation: Assets represent economic resources owned by the business that are expected to provide future economic benefits. Increases in assets are recorded on the debit side, making their normal balance a debit.
Question 2: Liability accounts normally have a debit balance. (True/False)
Correct Answer: False
Explanation: Liability accounts represent obligations of the business to transfer economic benefits to other entities in the future. Increases in liabilities are recorded on the credit side, making their normal balance a credit.
Question 3: Revenue accounts increase with a debit. (True/False)
Correct Answer: False
Explanation: Revenue accounts represent the inflow of economic benefits from the ordinary activities of a business. Revenues increase owner’s equity, which has a normal credit balance. Therefore, revenue accounts increase with a credit and decrease with a debit.
Question 4: Expense accounts normally have a credit balance. (True/False)
Correct Answer: False
Explanation: Expense accounts represent the costs incurred in the process of earning revenue. Expenses decrease owner’s equity, which has a normal credit balance. Therefore, expense accounts normally have a debit balance, and they increase with a debit.
Question 5: Owner’s Equity accounts normally have a credit balance. (True/False)
Correct Answer: True
Explanation: Owner’s Equity represents the owner’s residual claim on the assets of the business after deducting liabilities. Increases in owner’s equity (e.g., from investments or revenues) are recorded on the credit side, making its normal balance a credit.

Questions 6-10

Question 6: Cash is an asset account and therefore has a normal debit balance. (True/False)
Correct Answer: True
Explanation: Cash is a primary asset for any business. As an asset, its normal balance is a debit, meaning that increases in cash are recorded as debits.
Question 7: Accounts Payable is a liability account and increases with a debit. (True/False)
Correct Answer: False
Explanation: Accounts Payable is a liability, representing money owed to suppliers. Liabilities increase with a credit, not a debit. A debit to Accounts Payable would decrease the amount owed.
Question 8: Sales Revenue is a revenue account and has a normal credit balance. (True/False)
Correct Answer: True
Explanation: Sales Revenue is a revenue account, reflecting income from sales. Revenue accounts increase owner’s equity and thus have a normal credit balance.
Question 9: Rent Expense is an expense account and decreases with a credit. (True/False)
Correct Answer: True
Explanation: Rent Expense is an expense incurred by the business. Expense accounts have a normal debit balance, so a credit entry would decrease the expense.
Question 10: Dividends are a contra-equity account and normally have a credit balance. (True/False)
Correct Answer: False
Explanation: Dividends are distributions of earnings to shareholders, which reduce retained earnings (an equity account). As such, Dividends are a contra-equity account and normally have a debit balance.

Questions 11-15

Question 11: Accounts Receivable is an asset account and increases with a debit. (True/False)
Correct Answer: True
Explanation: Accounts Receivable represents money owed to the company by customers. As an asset, it has a normal debit balance, meaning increases are recorded with a debit.
Question 12: Unearned Revenue is a liability account and has a normal credit balance. (True/False)
Correct Answer: True
Explanation: Unearned Revenue represents cash received for services or goods not yet delivered. It is a liability because the company owes a service or product to the customer. Liabilities have a normal credit balance.
Question 13: Accumulated Depreciation is a contra-asset account and has a normal debit balance. (True/False)
Correct Answer: False
Explanation: Accumulated Depreciation is a contra-asset account, meaning it reduces the book value of an asset. Since asset accounts have a normal debit balance, contra-asset accounts have the opposite, a normal credit balance.
Question 14: Common Stock is an equity account and increases with a debit. (True/False)
Correct Answer: False
Explanation: Common Stock represents the ownership interest in a company. Equity accounts, including Common Stock, have a normal credit balance, meaning they increase with a credit.
Question 15: Cost of Goods Sold is an expense account and has a normal debit balance. (True/False)
Correct Answer: True
Explanation: Cost of Goods Sold represents the direct costs attributable to the production of goods sold by a company. As an expense, it has a normal debit balance.

Questions 16-20

Question 16: Prepaid Insurance is an asset account and decreases with a credit. (True/False)
Correct Answer: True
Explanation: Prepaid Insurance is an asset because it represents a future economic benefit (insurance coverage) that has been paid for in advance. As an asset, it has a normal debit balance, and thus decreases with a credit.
Question 17: Interest Payable is a liability account and increases with a debit. (True/False)
Correct Answer: False
Explanation: Interest Payable is a liability, representing interest owed but not yet paid. Liabilities have a normal credit balance, meaning they increase with a credit. A debit would decrease it.
Question 18: Utilities Expense is an expense account and increases with a debit. (True/False)
Correct Answer: True
Explanation: Utilities Expense is a cost incurred in the operation of the business. As an expense, it has a normal debit balance, and therefore increases with a debit.
Question 19: Retained Earnings is an equity account and has a normal credit balance. (True/False)
Correct Answer: True
Explanation: Retained Earnings represents the accumulated net income of the corporation not distributed as dividends. It is an equity account and thus has a normal credit balance.
Question 20: Sales Returns and Allowances is a contra-revenue account and has a normal credit balance. (True/False)
Correct Answer: False
Explanation: Sales Returns and Allowances is a contra-revenue account, meaning it reduces gross sales revenue. Since revenue accounts have a normal credit balance, contra-revenue accounts have the opposite, a normal debit balance.

Questions 21-25

Question 21: A decrease in an asset account is recorded with a credit. (True/False)
Correct Answer: True
Explanation: Asset accounts have a normal debit balance, meaning they increase with a debit. To decrease an asset account, a credit entry is required.
Question 22: A credit to a revenue account will decrease its balance. (True/False)
Correct Answer: False
Explanation: Revenue accounts have a normal credit balance. Therefore, a credit to a revenue account will increase its balance.
Question 23: The normal balance of a contra-liability account is a debit. (True/False)
Correct Answer: True
Explanation: Contra-liability accounts reduce the balance of a liability account. Since liability accounts have a normal credit balance, contra-liability accounts must have the opposite, a normal debit balance, to effect this reduction.
Question 24: Drawings (or Withdrawals) is an equity account that increases with a credit. (True/False)
Correct Answer: False
Explanation: Drawings (or Withdrawals) is a contra-equity account that reduces owner’s equity. Therefore, it increases with a debit and has a normal debit balance.
Question 25: Supplies Expense is an asset account. (True/False)
Correct Answer: False
Explanation: Supplies Expense is an expense account, representing the cost of supplies consumed during a period. Supplies (the unconsumed portion) is an asset account.

Questions 26-30

Question 26: A debit to an expense account will increase its balance. (True/False)
Correct Answer: True
Explanation: Expense accounts have a normal debit balance. Therefore, a debit entry increases the balance of an expense account.
Question 27: Notes Payable is a liability account and has a normal credit balance. (True/False)
Correct Answer: True
Explanation: Notes Payable represents a formal written promise to pay a sum of money at a future date. It is a liability, and all liability accounts have a normal credit balance.
Question 28: Equipment is an asset account and decreases with a debit. (True/False)
Correct Answer: False
Explanation: Equipment is an asset. Asset accounts have a normal debit balance, meaning they increase with a debit and decrease with a credit.
Question 29: Interest Revenue is a revenue account and increases with a credit. (True/False)
Correct Answer: True
Explanation: Interest Revenue is income earned from interest. As a revenue account, it has a normal credit balance and increases with a credit.
Question 30: Sales Discounts is a contra-revenue account and has a normal debit balance. (True/False)
Correct Answer: True
Explanation: Sales Discounts are reductions in the selling price given to customers for early payment. It is a contra-revenue account, and since revenue has a normal credit balance, contra-revenue accounts have a normal debit balance.

Questions 31-35

Question 31: A debit to an asset account will always increase its balance. (True/False)
Correct Answer: True
Explanation: Asset accounts represent resources owned by the business. Their normal balance is a debit, meaning that a debit entry increases the asset’s value.
Question 32: The normal balance of a liability account is a credit. (True/False)
Correct Answer: True
Explanation: Liabilities represent obligations of the business. Their normal balance is a credit, meaning that a credit entry increases the liability.
Question 33: When a company receives cash for services to be performed in the future, the Cash account is credited. (True/False)
Correct Answer: False
Explanation: When a company receives cash, the Cash account (an asset) increases, and asset increases are recorded with a debit. The Unearned Revenue account (a liability) would be credited.
Question 34: The normal balance of a contra-equity account is a debit. (True/False)
Correct Answer: True
Explanation: Contra-equity accounts, such as Dividends, reduce the overall equity. Since equity accounts have a normal credit balance, contra-equity accounts must have the opposite, a normal debit balance.
Question 35: Accumulated Depreciation is a liability account. (True/False)
Correct Answer: False
Explanation: Accumulated Depreciation is a contra-asset account, not a liability. It reduces the book value of an asset.

Questions 36-40

Question 36: Prepaid Expenses are asset accounts. (True/False)
Correct Answer: True
Explanation: Prepaid Expenses represent payments made for expenses that will be incurred in a future accounting period. Until they are consumed, they are considered assets, and thus have a normal debit balance.
Question 37: A credit to the Common Stock account will decrease its balance. (True/False)
Correct Answer: False
Explanation: Common Stock is an equity account. Equity accounts have a normal credit balance, meaning a credit entry will increase its balance.
Question 38: The normal balance of the Salaries Payable account is a debit. (True/False)
Correct Answer: False
Explanation: Salaries Payable is a liability account, representing wages owed to employees. Liability accounts have a normal credit balance.
Question 39: Advertising Expense is an expense account and increases with a debit. (True/False)
Correct Answer: True
Explanation: Advertising Expense is a cost incurred to promote a business. As an expense, it has a normal debit balance and increases with a debit.
Question 40: A debit to Accounts Payable will increase the amount owed. (True/False)
Correct Answer: False
Explanation: Accounts Payable is a liability account with a normal credit balance. A debit to Accounts Payable will decrease the amount owed.

Questions 41-45

Question 41: The normal balance of a revenue account is a credit. (True/False)
Correct Answer: True
Explanation: Revenue accounts represent the income generated from the primary operations of a business. They increase owner’s equity, which has a normal credit balance. Therefore, revenue accounts normally have a credit balance.
Question 42: Inventory is an asset account and decreases with a debit. (True/False)
Correct Answer: False
Explanation: Inventory is an asset account, representing goods available for sale. Asset accounts have a normal debit balance, meaning they increase with a debit and decrease with a credit.
Question 43: A credit to the Unearned Revenue account will decrease its balance. (True/False)
Correct Answer: False
Explanation: Unearned Revenue is a liability account. Liability accounts have a normal credit balance, so a credit entry will increase its balance.
Question 44: The normal balance of the Depreciation Expense account is a debit. (True/False)
Correct Answer: True
Explanation: Depreciation Expense is an expense account, representing the cost of using an asset over time. All expense accounts have a normal debit balance.
Question 45: Bonds Payable is a long-term liability account and has a normal credit balance. (True/False)
Correct Answer: True
Explanation: Bonds Payable represents money borrowed by the company that must be repaid in the future. It is a liability account, and all liability accounts have a normal credit balance.

Questions 46-50

Question 46: A debit to the Sales Returns and Allowances account will increase its balance. (True/False)
Correct Answer: True
Explanation: Sales Returns and Allowances is a contra-revenue account. Contra-revenue accounts have a normal debit balance, so a debit entry increases their balance.
Question 47: The normal balance of the Income Summary account is always a credit. (True/False)
Correct Answer: False
Explanation: The Income Summary account is a temporary account used during the closing process. Its balance can be either a debit (for a net loss) or a credit (for a net income) before being closed to Retained Earnings. It does not have a fixed normal balance.
Question 48: A credit to the Dividends account will increase its balance. (True/False)
Correct Answer: False
Explanation: Dividends is a contra-equity account and has a normal debit balance. Therefore, a credit to the Dividends account would decrease its balance.
Question 49: The normal balance of the Capital Stock account is a credit. (True/False)
Correct Answer: True
Explanation: Capital Stock (or Common Stock) is an equity account, representing the ownership interest in a company. Equity accounts have a normal credit balance.
Question 50: When a company pays off a portion of its loan, the Cash account is debited. (True/False)
Correct Answer: False
Explanation: When a company pays cash, the Cash account (an asset) decreases. Asset decreases are recorded with a credit. The Notes Payable account (a liability) would be debited to decrease the liability.

Section 1: Fundamental Rules of Normal Balances

1. The “normal balance” of an account refers to the side (debit or credit) that decreases the account.
  • Answer: False
  • Explanation: The normal balance is the side thatincreases the account. For example, because assets are increased by debits, their normal balance is a debit.
2. In accounting, the term “debit” always means left, and “credit” always means right.
  • Answer: True
  • Explanation: Regardless of whether a transaction is good or bad for the business, “debit” strictly refers to the left side of a T-account, and “credit” refers to the right side.
3. The fundamental accounting equation is Assets = Liabilities – Equity.
  • Answer: False
  • Explanation: The correct fundamental accounting equation isAssets = Liabilities + Equity. This equation must always remain in balance, which is why total debits must always equal total credits.
4. In a double-entry accounting system, the total amount of debits must always equal the total amount of credits for every transaction.
  • Answer: True
  • Explanation: This is the core rule of double-entry bookkeeping. Every transaction affects at least two accounts, and the debits must equal credits to keep the accounting equation balanced.
5. A “normal balance” means the account must always have a positive, non-zero balance.
  • Answer: False
  • Explanation: “Normal balance” simply refers to the side (debit or credit) that increases the account. An account can have a zero balance and still have a defined “normal balance” side.
6. Assets and Liabilities share the same normal balance.
  • Answer: False
  • Explanation: They have opposite normal balances. Assets have a normaldebit balance, while Liabilities have a normalcredit balance.
7. All Equity accounts normally have a credit balance.
  • Answer: True
  • Explanation: Equity represents the owners’ residual claim on assets. Since Assets = Liabilities + Equity, and assets are debits, equity must logically have a normal credit balance to keep the equation balanced.
8. To increase any account in accounting, you simply debit it.
  • Answer: False
  • Explanation: You only debit an account to increase it if its normal balance is a debit (like Assets or Expenses). To increase an account with a normal credit balance (like Liabilities or Revenue), you must credit it.
9. The DEALER acronym is a helpful tool to remember normal balances: Dividends, Expenses, Assets have Debit balances; Liabilities, Equity, Revenue have Credit balances.
  • Answer: True
  • Explanation: DEALER is a widely used mnemonic. The first half (D, E, A) represents accounts with normal Debit balances, and the second half (L, E, R) represents accounts with normal Credit balances.
10. An account can never have a balance on the opposite side of its normal balance.
  • Answer: False
  • Explanation: While rare, an accountcan have an “abnormal balance.” For example, if a company overdraws its bank account, the Cash (asset) account will temporarily show a credit balance.

Section 2: Asset Accounts

11. The “Cash” account, being the most liquid asset, has a normal debit balance.
  • Answer: True
  • Explanation: Cash is a core current asset. All asset accounts are increased by debits, meaning their normal balance is on the debit side.
12. “Accounts Receivable” has a normal credit balance because it represents money the company owes to others.
  • Answer: False
  • Explanation: Accounts Receivable represents moneyowed to the company by its customers. It is an asset, not a liability, and therefore has a normaldebit balance. (AccountsPayable is the liability with a credit balance).
13. “Inventory” is an asset account and has a normal debit balance.
  • Answer: True
  • Explanation: Inventory represents goods held for sale. As a current asset, it is increased by debits and carries a normal debit balance.
14. “Prepaid Insurance” has a normal credit balance because the insurance has already been paid for.
  • Answer: False
  • Explanation: Prepaid Insurance is a current asset because it represents a future economic benefit (coverage yet to be used). Therefore, it has a normaldebit balance.
15. “Equipment” and “Machinery” are fixed assets with normal debit balances.
  • Answer: True
  • Explanation: Property, Plant, and Equipment (PP&E) are long-term tangible assets. Like all assets, they are increased by debits.
16. “Land” is the only asset account that has a normal credit balance.
  • Answer: False
  • Explanation: Land is a fixed asset and has a normaldebit balance. Unlike equipment, land is not depreciated, but its normal balance remains a debit.
17. If an asset account shows a credit balance, it is considered to have an abnormal balance.
  • Answer: True
  • Explanation: Since assets normally have debit balances, a credit balance in an asset account is “abnormal” and usually indicates an error or a specific situation like a bank overdraft.
18. “Supplies” is an asset with a normal debit balance until it is used up.
  • Answer: True
  • Explanation: When purchased, supplies are recorded as an asset (debit). Once they are consumed, they are expensed, but the Supplies asset account itself inherently has a normal debit balance.

Section 3: Contra-Asset Accounts

19. A “contra-asset” account has a normal debit balance, just like a regular asset.
  • Answer: False
  • Explanation: The prefix “contra” means opposite. A contra-asset account is used to offset a regular asset, so it must have the opposite normal balance: acredit.
20. “Accumulated Depreciation” is a contra-asset account with a normal credit balance.
  • Answer: True
  • Explanation: Accumulated Depreciation tracks the total depreciation taken on a fixed asset over time. It offsets the asset’s cost, so it carries a normal credit balance.
21. “Allowance for Doubtful Accounts” is a contra-asset paired with Accounts Receivable and has a normal credit balance.
  • Answer: True
  • Explanation: This account estimates the portion of Accounts Receivable that will not be collected. Because it reduces the net realizable value of receivables (an asset), it has a normal credit balance.
22. On the balance sheet, contra-asset accounts are added to the related asset accounts to show the total value.
  • Answer: False
  • Explanation: Contra-asset accounts aresubtracted from the related gross asset accounts to arrive at the net book value (e.g., Equipment minus Accumulated Depreciation).
23. The normal balance of any contra-asset account is always the opposite of a regular asset account.
  • Answer: True
  • Explanation: By definition, a contra account always carries a balance opposite to its related master account. Since regular assets are debits, contra-assets are credits.

Section 4: Liability Accounts

24. “Accounts Payable” represents money owed to suppliers and has a normal debit balance.
  • Answer: False
  • Explanation: Accounts Payable is a current liability. Because liabilities represent obligations and are increased by credits, Accounts Payable has a normalcredit balance.
25. “Notes Payable” is a liability account and therefore has a normal credit balance.
  • Answer: True
  • Explanation: Whether short-term or long-term, Notes Payable represents a formal debt obligation. All liability accounts have a normal credit balance.
26. “Unearned Revenue” is considered a liability because the company owes a product or service to the customer.
  • Answer: True
  • Explanation: Even though it has the word “revenue” in the name, Unearned (or Deferred) Revenue is a liability because the company has received cash but has not yet earned it. Thus, it has a normal credit balance.
27. “Salaries Payable” has a normal debit balance because it represents an expense.
  • Answer: False
  • Explanation: Salaries Payable is a liability (money owed to employees for work already done but not yet paid). It has a normalcredit balance. (SalariesExpense is the account with the debit balance).
28. “Mortgage Payable” is a long-term liability with a normal credit balance.
  • Answer: True
  • Explanation: A mortgage is a long-term debt obligation secured by real estate. As a liability, it is increased by credits and has a normal credit balance.
29. When a company pays off a liability, it debits the liability account to decrease it.
  • Answer: True
  • Explanation: Since liabilities have a normal credit balance, they are increased by credits and decreased by debits. Paying off a debt requires debiting the liability and crediting cash.

Section 5: Contra-Liability & Adjunct Accounts

30. “Discount on Bonds Payable” is a contra-liability account and has a normal debit balance.
  • Answer: True
  • Explanation: When bonds are issued at a discount, this contra-liability account is used. It is subtracted from the Bonds Payable (credit) account, so it carries a normal debit balance.
31. “Premium on Bonds Payable” is an adjunct-liability account and has a normal debit balance.
  • Answer: False
  • Explanation: A premium occurs when bonds are issued for more than face value. It is anadjunct account, meaning it is added to the Bonds Payable. Therefore, it shares the same normal balance as the liability: acredit.

Section 6: Equity Accounts

32. “Common Stock” represents the owners’ investment and has a normal debit balance.
  • Answer: False
  • Explanation: Common Stock is a core equity account representing the par value of issued shares. As an equity account, it has a normalcredit balance.
33. “Retained Earnings” tracks cumulative net income minus dividends and has a normal credit balance.
  • Answer: True
  • Explanation: Retained Earnings represents the profits kept in the business. Since net income increases equity, Retained Earnings naturally carries a normal credit balance.
34. In a sole proprietorship, the “Owner’s Capital” account has a normal debit balance.
  • Answer: False
  • Explanation: Owner’s Capital represents the owner’s equity in the business. Like all equity accounts, it has a normalcredit balance.
35. “Additional Paid-In Capital” (APIC) represents the amount paid by investors above the par value of stock and has a normal credit balance.
  • Answer: True
  • Explanation: APIC is an additional contribution to equity. Because it increases total equity, it is credited and has a normal credit balance.
36. If a company reports a net loss for the year, the Retained Earnings account will be debited to close the loss.
  • Answer: True
  • Explanation: A net loss reduces equity. To close the Income Summary (which has a debit balance for a net loss) to Retained Earnings, Retained Earnings must be debited, thereby decreasing its credit balance.
37. Equity accounts are increased by debits and decreased by credits.
  • Answer: False
  • Explanation: Equity accounts have a normalcredit balance. Therefore, they are increased by credits and decreased by debits.

Section 7: Contra-Equity Accounts

38. “Treasury Stock” represents shares repurchased by the company and is a contra-equity account with a normal debit balance.
  • Answer: True
  • Explanation: When a company buys back its own stock, it reduces total equity. Therefore, Treasury Stock is a contra-equity account and carries a normaldebit balance.
39. “Owner’s Drawings” (or “Dividends Declared”) has a normal credit balance because it relates to equity.
  • Answer: False
  • Explanation: Drawings and Dividends represent distributions of equity to owners/shareholders. Because they reduce equity, they are contra-equity accounts and have a normaldebit balance.
40. The purpose of a contra-equity account is to reduce the total reported equity on the balance sheet.
  • Answer: True
  • Explanation: Just like contra-assets reduce total assets, contra-equity accounts (like Treasury Stock or Dividends) are subtracted from total equity to show the net equity of the company.

Section 8: Revenue Accounts

41. “Service Revenue” has a normal debit balance because it increases assets.
  • Answer: False
  • Explanation: While earning revenue often increases assets (like Cash), the Revenue account itself is an equity sub-category. It has a normalcredit balance.
42. “Sales Revenue” is increased by credits and has a normal credit balance.
  • Answer: True
  • Explanation: Sales Revenue represents the primary earnings of a merchandising business. Like all revenue accounts, it increases equity and is therefore credited.
43. At the end of the accounting period, revenue accounts are closed to Retained Earnings by debiting the revenue accounts.
  • Answer: True
  • Explanation: To reset revenue accounts to zero for the next period, you must do the opposite of their normal balance. Since they have a normal credit balance, you debit them to close them out to Income Summary/Retained Earnings.
44. “Interest Revenue” is an asset account with a normal debit balance.
  • Answer: False
  • Explanation: Interest Revenue is a non-operatingrevenue account, not an asset. It represents income earned from investments or bank accounts and has a normalcredit balance.

Section 9: Contra-Revenue Accounts

45. “Sales Returns and Allowances” is a contra-revenue account with a normal debit balance.
  • Answer: True
  • Explanation: This account tracks goods returned by customers or price reductions given. Because it reduces total revenue, it is a contra-revenue account and carries a normaldebit balance.
46. “Sales Discounts” offered to customers for early payment have a normal credit balance.
  • Answer: False
  • Explanation: Sales Discounts reduce the amount of revenue ultimately collected. As a contra-revenue account, it has the opposite balance of Sales Revenue, meaning it has a normaldebit balance.

Section 10: Expense Accounts

47. “Cost of Goods Sold” (COGS) is treated as an expense and has a normal debit balance.
  • Answer: True
  • Explanation: COGS represents the direct costs of producing goods sold. Although it relates to inventory (an asset), once the goods are sold, the cost becomes an expense. Thus, it has a normal debit balance.
48. “Rent Expense” has a normal credit balance because rent is a major liability.
  • Answer: False
  • Explanation: Rent Expense is an operating expense. Expenses reduce equity, so they have a normaldebit balance. (RentPayable would be the liability with a credit balance).
49. “Depreciation Expense” has a normal debit balance, while “Accumulated Depreciation” has a normal credit balance.
  • Answer: True
  • Explanation: This is a classic accounting distinction. DepreciationExpense is an income statement account (debit balance). AccumulatedDepreciation is a balance sheet contra-asset account (credit balance).
50. “Bad Debt Expense” is a contra-asset account with a normal credit balance.
  • Answer: False
  • Explanation: Bad Debt Expense is an operating expense reported on the income statement, so it has a normaldebit balance. (TheAllowance for Doubtful Accounts is the contra-asset with the credit balance).

 

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