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Simple English definitions for legal terms
normal balance
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A quick definition of normal balance:
Normal balance: A way of keeping track of money in a special book called a ledger. Some types of money are usually written as "debts" and some are usually written as "credits." For example, when we talk about things you own, like your toys or your bike, we usually write them as debts. When we talk about things you owe, like money you borrowed from a friend, we usually write them as credits. This helps us keep track of how much money you have and how much you owe.
A more thorough explanation:
Normal balance refers to the type of debit or credit balance that is typically found in ledger accounts. In other words, it is the expected balance for a particular type of account.
For example, assets usually have a debit balance, while liabilities usually have a credit balance. This means that when a transaction increases an asset account, it is recorded as a debit, and when a transaction increases a liability account, it is recorded as a credit.
Another example is equity accounts, which also typically have a credit balance. When a company earns profits, it is recorded as a credit to the equity account, and when the company incurs losses, it is recorded as a debit to the equity account.
The normal balance concept is important because it helps ensure that transactions are recorded accurately and consistently across different accounts and companies.