What kind of balance does an expense account typically have?

What kind of balance does an expense account typically have?

• A. Credit
• B. Debit
• C. Zero
• D. Any balance

Answer: (B)

An expense account typically has a debit balance. This is because expenses represent costs incurred by a business in the course of its operations. In accounting terms, when a company records an expense, it increases the expense account with a debit entry, reflecting that resources have been consumed or liabilities increased. In contrast to asset and liability accounts, where debit and credit balances may differ based on specific transactions, expense accounts consistently maintain a debit balance. This is important for financial reporting because at the end of an accounting period, total expenses are used to determine net income; they are subtracted from total revenues, and if expenses are recorded as credits, it would misrepresent the financial standing of the company. Recognizing that an expense account's normal balance is a debit is fundamental in understanding basic accounting principles, as it directly affects a company’s profit and loss statements.

An expense account typically has a debit balance. This is because expenses represent costs incurred by a business in the course of its operations. In accounting terms, when a company records an expense, it increases the expense account with a debit entry, reflecting that resources have been consumed or liabilities increased.

In contrast to asset and liability accounts, where debit and credit balances may differ based on specific transactions, expense accounts consistently maintain a debit balance. This is important for financial reporting because at the end of an accounting period, total expenses are used to determine net income; they are subtracted from total revenues, and if expenses are recorded as credits, it would misrepresent the financial standing of the company.

Recognizing that an expense account's normal balance is a debit is fundamental in understanding basic accounting principles, as it directly affects a company’s profit and loss statements.