LO
3.5Discuss how each of the following transactions for Watson, International, will affect assets, liabilities, and stockholders’ equity, and prove the company’s accounts will still be in balance. For reference, the chart below sets out the type, side of the accounting equation (AE), and the normal balance of some typical accounts found within a small business bookkeeping system. Although each account has a normal balance in practice it is possible for any account which set of accounts below would have a normal debit balance? to have either a debit or a credit balance depending on the bookkeeping entries made. LO
3.4Identify whether ongoing transactions posted to the following accounts would normally have only debit entries (Dr), only credit entries (Cr), or both debit and credit entries (both). So for example there are contra expense accounts such as purchase returns, contra revenue accounts such as sales returns and contra asset accounts such as accumulated depreciation.
- These accounts are contained within the liability and equity sections of the balance sheet, and the revenue section of the income statement.
- This occurs because every transaction must have the debit amounts equal to the credit amounts.
- LO
3.5Post the following February transactions to T-accounts for Accounts Receivable and Cash, indicating the ending balance (assume no beginning balances in these accounts). - The same entry will credit its liability account Notes Payable for $10,000 since that account balance is also enhancing.
- LO
3.4Identify whether each of the following transactions would be recorded with a debit (Dr) or credit (Cr) entry. - He has worked as an accountant and consultant for more than 25 years and has built financial models for all types of industries.
If the borrower is repaying the debt with regular installment payments, then the debit balance should gradually decline over time. If the borrower is paying down the balance at an accelerated rate, this will result in a substantial decline in the total amount of interest paid. Textbook content produced by OpenStax is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike License . Debit simply means on the left side of the equation, whereas credit means on the right hand side of the equation as summarized in the table below. This book may not be used in the training of large language models or otherwise be ingested into large language models or generative AI offerings without OpenStax’s permission.
Using the Normal Balance
Examples of these accounts are the cash, accounts receivable, prepaid expenses, fixed assets (asset) account, wages (expense) and loss on sale of assets (loss) account. Contra accounts that normally have debit balances include the contra liability, contra equity, and contra revenue accounts. An example of these accounts is the treasury stock (contra equity) account. Each of the accounts in a trial balance extracted from the bookkeeping ledgers will either show a debit or a credit balance. The normal balance of any account is the balance (debit or credit) which you would expect the account have, and is governed by the accounting equation. A debit balance is a negative cash balance in a checking account with a bank.
He has been the CFO or controller of both small and medium sized companies and has run small businesses of his own. He has been a manager and an auditor with Deloitte, a big 4 accountancy firm, and holds a degree from Loughborough University. For this reason the account balance for items on the left hand side of the equation is normally a debit and the account balance for items on the right side of the equation is normally a credit. LO
3.5Determine whether the balance in each of the following accounts increases with a debit or a credit. LO
3.4Identify whether each of the following transactions would be recorded with a debit (Dr) or credit (Cr) entry.
