normal balance

It is important to understand that when we talk about liabilities, we are not just talking about loans. Money collected for gift cards, subscriptions, or as advance deposits from customers could also be liabilities. Essentially, anything a company owes and has yet to pay within a period is considered a liability, such as salaries, utilities, and taxes. Let’s say there were a credit of $4,000 and a debit of $6,000 in the Accounts Payable account. Since Accounts Payable increases on the credit side, one would expect a normal balance of accounts on the credit side.

normal balance

Insurance, for example, is usually purchased for more than one month at a time (six months typically). The company does not use all six months of the insurance at once, it uses it one month at a time. As each month passes, the company will adjust its records to reflect the cost of one month of insurance usage. When a publicly traded company in the United States issues its financial statements, the financial statements have been audited by a Public Company Accounting Oversight Board (PCAOB) approved auditor. The PCAOB is the organization that sets the auditing standards, after approval by the SEC. It is important to remember that auditing is not the same as accounting.

Breaking Down the Expanded Accounting Equation

The big companies usually provide a credit line to their important suppliers during economic distress. The companies do that because if the suppliers go under, it can have an impact on the whole supply chain of the company, and ultimately this will also have an impact on the company’s operation itself. With a larger tax refund on the horizon for millions of Americans, it makes sense to use a tax preparation service now and file your refund early.

This graphic representation of a general ledger account is known as a T-account. Service companies do not have goods for sale and would thus not have inventory. The time period assumption states that a company can present useful information in shorter time periods, such as years, quarters, or months. The information is broken into time frames to make comparisons and evaluations easier.