Accounting Fundamentals Certification (AFC) 2025 – 400 Free Practice Questions to Pass the Exam

In accounting, a credit balance in a liability account is indicative of the normal balance expected for that type of account. Liabilities represent obligations or debts that the entity owes to outside parties. When a liability account has a credit balance, it means that the company has existing obligations that are yet to be settled, and these are recorded as positive amounts in the balance sheet.

A credit balance represents an increase in liabilities, which aligns with the fundamental accounting principle that liabilities typically carry a credit balance. When these accounts are increased, they are recorded as credits, solidifying that the proper reporting of liabilities reflects what the organization owes.

The other options do not represent a credit balance in a liability account: a debit balance indicates a reduction in liabilities, a zero balance means there are no liabilities recorded, and a negative balance would suggest an atypical scenario that does not fit the standard classification of liability accounts.