Debits and Credits

1.      CheckPoint: Debits and Credits

·         Resource: Fundamental Accounting Principles, p. 74

·         Post your answers to Quick Study questions 2-3, 2-4, and 2-5.

C5

Define debits and credits and explain their role in double-entry accounting. Debit refers to left, and credit refers to right. Debits increase assets, expenses, and withdrawals while credits decrease them. Credits increase liabilities, owner capital, and revenues; debits decrease them. Double-entry accounting means each transaction affects at least two accounts and has at least one debit and one credit. The system for recording debits and credits follows from the accounting equation. The left side of an account is the normal balance for assets, withdrawals, and expenses, and the right side is the normal balance for liabilities, capital, and revenues.

A1

Analyze the impact of transactions on accounts and financial statements. We analyze transactions using concepts of double-entry accounting. This analysis is performed by determining a transaction’s effects on accounts. These effects are recorded in journals and posted to ledgers.

QS 2-3

Linking debit or credit with normal balance

C5

Indicate whether a debit or credit decreases the normal balance of each of the following accounts:

                       

a. Office Supplies	Credit
b. Repair Services Revenue	Debit
c. Interest Payable	Credit
d. Accounts Receivable	Debit
e. Salaries Expense	Credit
f. Owner Capital	Debit
g. Prepaid Insurance	Credit
h. Buildings	Credit
i. Interest Revenue	Debit
j. Owner Withdrawals	Credit
k. Unearned Revenue	Debit
l. Accounts Payable	Credit

                       

QS 2-4

Analyzing debit or credit by account

C5 A1

Identify whether a debit or credit yields the indicated change for each of the following accounts:

                                   

a. To increase Store Equipment	Debit
b. To increase Owner Withdrawals	Debit
c. To decrease Cash	Credit
d. To increase Utilities Expense	Debit
e. To increase Fees Earned	Credit
f. To decrease Unearned Revenue	Debit
g. To decrease Prepaid Insurance	Credit
h. To increase Notes Payable	Debit
i. To decrease Accounts Receivable	Debit
j. To increase Owner Capital	Credit

QS 2-5

Identifying normal balance

C5

Identify whether the normal balances (in parentheses) assigned to the following accounts are correct or incorrect.

a. Office supplies (Debit)	Correct
b. Owner Withdrawals (Credit)	Incorrect
c. Fees Earned (Debit)	Correct
d. Wages Expense (Credit)	Incorrect
e. Cash (Debit)	Correct
f. Prepaid Insurance (Credit)	Correct
g. Wages Payable(Credit)	Correct
h. Building (Debit)	Correct