On the contrary, when an amount is accounted for on the opposite side of its normal balance, it decreases that amount. Here’s a simple table to illustrate how a double-entry accounting system might work with normal balances. A normal balance is the side of an account a company normally debits or credits. A contra account is an optional accounting tool you can use d to improve the accuracy of financial statements. You can use a T-account to illustrate the effects of debits and credits on the expense account. In accounting, understanding normal balance will help you keep a close watch on your accounts and to know if there is a potential problem. It is possible for an account expected to have a normal balance as a debit to actually have a credit balance, and vice versa, but these situations should be in the minority. This means that the new accounting year starts with no revenue amounts, no expense amounts, and no amount in the drawing account. This way, the transactions are organized by the date on which they occurred, providing a clear timeline of the company’s financial activities. Understanding the normal balance of an account is essential for maintaining accurate […]