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Rules of debit and credit and normal balances State for each account whether it is likely to have (a) debit entries only, (b) credit entries only, or (c) both debit and credit entries. Also, indicate its normal balance. 1. Accounts Payable 2. Cash 3. Dividends 4. Miscellaneous Expense 5. Insurance Expense 6. Fees Earned

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Financial And Managerial Accounting

15th Edition
WARREN + 1 other
Publisher: Cengage Learning,
ISBN: 9781337902663

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Chapter
Section
BuyFindarrow_forward

Financial And Managerial Accounting

15th Edition
WARREN + 1 other
Publisher: Cengage Learning,
ISBN: 9781337902663
Chapter 2, Problem 1BE
Textbook Problem
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Rules of debit and credit and normal balances

State for each account whether it is likely to have (a) debit entries only, (b) credit entries only, or (c) both debit and credit entries. Also, indicate its normal balance.

  1. 1. Accounts Payable
  2. 2. Cash
  3. 3. Dividends
  4. 4. Miscellaneous Expense
  5. 5. Insurance Expense
  6. 6. Fees Earned

To determine

Determine whether each of the following account is likely to have (a) debit entries only, (b) credit entries only, or (c) both debit and credit entries, and also to indicate its normal balance.

Explanation of Solution

Normal balance:

Normal balance refers to the excess of amount on one side, over the amount on the other side in an account. The excess amount of debit side over the credit side is shown as the normal debit balance. The excess amount of credit side over the debit side is shown as the normal credit balance.

Type of accountNormal balance
Asset accountDebit balance
Liability accountCredit balance
Expense accountDebit balance
Revenue accountCredit balance
Dividend accountDebit balance

Rules of Debit and Credit

Following rules are followed for debiting and crediting different accounts while they occur in business transactions:

  • Debit, all increase in assets, expense, dividends, and owner’s drawing accounts, and all decrease in liabilities, revenues and owner’s capital accounts.
  • Credit, all increase in liabilities, revenues, and owner’s capital accounts, and all decrease in assets, expenses, and owner’s drawing account.

1. Accounts payable is likely to have (c) both debit and credit entries, and it has the normal credit balance. 

  • • Accounts payable arise when the purchases are made on account.
  • • As accounts payable is credited when goods and services are purchased on account, and it is debited when the payment is paid to the suppliers, it is likely to have both debit and credit entries.
  • • Accounts payable account is the liability account, and hence, it has the normal credit balance.

2. Cash is likely to have (c) debit and credit entries, and it has the normal debit balance. 

  • • Cash is the liquid asset owned by the company.
  • • While the cash is received, it is debited, and while cash is paid, it is credited...

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Chapter 2 Solutions

Financial And Managerial Accounting
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