Accounting Fundamentals Certification (AFC) Practice Test

What is the typical balance type for an Expense account?

1. Credit Balance

2. Debit Balance

3. No Balance

4. Negative Balance

The correct answer is: Debit Balance

An Expense account typically carries a debit balance because expenses represent the costs incurred by a business to generate revenue. In accounting terms, when a business incurs an expense, it is recorded as a debit entry, which increases the expense account. Since expenses decrease the owner's equity (the net worth of the business), they are recorded in a way that necessitates a debit balance. When accounts are structured within the framework of the accounting equation (Assets = Liabilities + Owner's Equity), any increase in expenses ultimately results in a decrease in owner’s equity. Therefore, following the conventions of double-entry accounting, all expense accounts are designed to maintain a debit balance throughout their activity, making option B the correct choice. Other options do not align with standard accounting practices. Expense accounts cannot have a credit balance as that would imply income rather than expenses, nor can they accurately be described as having "no balance," which would suggest that no expenses have ever been recorded. A "negative balance" generally implies an overdrawn situation, which is not applicable to expense accounts under typical circumstances.