What type of account normally maintains a credit balance?

Liabilities are the type of account that typically maintains a credit balance. This is fundamentally because liabilities represent obligations or debts that a business owes to external parties, such as loans or accounts payable. In accounting, the normal balance for liability accounts is on the credit side, reflecting that an increase in liabilities is recorded as a credit entry.

When liabilities are recognized, they increase with credits. For example, when a company borrows money, it records an increase in its liabilities with a credit entry, thus maintaining a credit balance. This is a crucial aspect of the double-entry accounting system, where every transaction affects at least two accounts, ensuring that the accounting equation (Assets = Liabilities + Equity) remains balanced.

In contrast, asset accounts typically maintain a debit balance, as they represent resources owned by the business, and expenses also have a debit balance since they reduce equity. Dividends, which are distributions to shareholders, would inherently reduce retained earnings, thus they also do not maintain a credit balance. Understanding these fundamental accounting principles helps clarify why liabilities are characterized by a credit balance.