What is the normal balance of the Owners Capital account?

• A. Asset
• B. Credit
• C. Debit
• D. Liability

Answer: (B)

The normal balance for an Owner's Capital account is a credit. This account is part of owner’s equity, and in double-entry accounting equity accounts increase on the credit side and decrease on the debit side. Investments into the business or the business’s profits increase owner’s equity, so they are recorded as credits to Owner's Capital. Withdrawals or drawings decrease equity, so they are recorded as debits to Owner's Capital. For example, when the owner contributes cash, you debit Cash and credit Owner's Capital; when the owner withdraws funds, you debit Owner's Capital and credit Cash. Since Owner's Capital naturally carries a credit balance, the normal balance is a credit.