State BPA Fundamental Accounting Practice Exam

Which account type does not normally carry a credit balance?

1. Expense accounts

2. Revenue accounts

3. Liability accounts

4. Equity accounts

The correct answer is: Expense accounts

Expense accounts do not normally carry a credit balance because they represent the costs incurred by a business to generate revenue. When expenses are recorded, an expense account is debited, which increases the account balance. This is in line with the double-entry accounting system, where debiting an expense account indicates an increase in expenses, thus reducing overall equity when net income is calculated. In contrast, revenue accounts, liability accounts, and equity accounts typically have credit balances. Revenue accounts increase with credits, reflecting income earned by the business. Liability accounts represent obligations and also carry a credit balance as they indicate what the business owes to others. Similarly, equity accounts reflect the owners' interest in the business and are increased by credits, signifying retained earnings or additional investments by the owners.