What Is the Normal Balance for Capital Accounts? Understanding Debit and Credit Balances in Accounting

Normal Balances for Accounts

• Asset accounts normally have debit balances.
• Liabilities and capital accounts normally have credit balances.
• Income increases capital, thus income has a normal credit balance.
• The capital account, representing the amount of money the business owes its owner, has a normal credit balance.
• Contra asset accounts like accumulated depreciation have normal credit balances.

Purchases and Depreciation

• When a company purchases a fixed asset, the fixed asset account is debited.
• As the fixed asset depreciates, the contra asset account is credited over time.

Capital Account Balance

• If a capital account has a debit balance, the business is likely insolvent.