Normal account balance definition
/What is a Normal Account Balance?
A normal balance is the expectation that a particular type of account will have either a debit or a credit balance based on its classification within the chart of accounts. 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. Abnormal account balances are triggered by transactions that are out of the ordinary; for example, the cash balance should have a normal debit balance, but could have a credit balance if the account is overdrawn. The normal account balance for many accounts are noted in the following exhibit.
A contra account contains a normal balance that is the reverse of the normal balance for that class of account. The contra accounts noted in the preceding table are usually set up as reserve accounts against declines in the usual balance in the accounts with which they are paired. For example, a contra asset account such as the allowance for doubtful accounts contains a credit balance that is intended as a reserve against accounts receivable that will not be paid. The contra equity account usually refers to treasury stock, which is stock that has been bought back by the company, and so carries a normal balance that is the reverse of the normal balance for an equity account.
There are several possible reasons why an account might contain a balance that is the reverse of its normal balance, such as:
A journal entry was incorrectly recorded in the wrong account.
An entry reverses a transaction that was in a prior year, and which has already been zeroed out of the account.
An offsetting entry was recorded prior to the entry it was intended to offset.