Why do liabilities have credit balance?
Jackson Reed
Updated on January 05, 2026
Liabilities, revenues, and equity accounts have natural credit balances. If a debit is applied to any of these accounts, the account balance has decreased. For the revenue accounts in the income statement, debit entries decrease the account, while a credit points to an increase to the account.
What happens when you credit a liability account?
A debit to a liability account means the business doesn’t owe so much (i.e. reduces the liability), and a credit to a liability account means the business owes more (i.e. increases the liability).
What do credits do to assets and liabilities?
Credits increase liability, equity, and revenue accounts. Credits decrease asset and expense accounts.
Can assets have credit balance?
A few asset accounts intentionally have credit balances. For instance, the account Accumulated Depreciation (which is a plant asset account) will have a credit balance since it is credited for the amounts that are debited to Depreciation Expense. Expenses occurred faster than the agreed upon prepayments.
What account has a credit balance?
The side that increases (debit or credit) is referred to as an account’s normal balance. Remember, any account can have both debits and credits….Recording changes in Income Statement Accounts.
| Account Type | Normal Balance |
|---|---|
| Liability | CREDIT |
| Equity | CREDIT |
| Revenue | CREDIT |
| Expense | DEBIT |
Can you credit a liability?
A debit is an accounting entry that either increases an asset or expense account, or decreases a liability or equity account. A credit is an accounting entry that either increases a liability or equity account, or decreases an asset or expense account. It is positioned to the right in an accounting entry.
What are liabilities give two examples?
Examples of liabilities are –
- Bank debt.
- Mortgage debt.
- Money owed to suppliers (accounts payable)
- Wages owed.
- Taxes owed.
Do liabilities have a credit balance?
Liability accounts will normally have credit balances and the credit balances are increased with a credit entry. In the accounting equation, liabilities appear on the right side of the equal sign. In the liability accounts, the account balances are normally on the right side or credit side of the account.
Which assets have credit balance?
Why do some asset accounts have a credit balance?
- Contra asset accounts.
- Accumulated depreciation.
- Bad debt / Allowance for doubtful accounts.
- Reserve for obsolete inventory.
- Human error.
- Bouncing a check.
- Changes in regularly scheduled bills.
- Overzealous asset depreciation.
Can debtors have credit balance?
Debtors have a debit balance to the firm while creditors have a credit balance to the firm. Payments or the amount owed is received from debtors while payments for a loan are made to creditors.
