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Accounting (Text Only)

26th Edition
Carl Warren + 2 others
ISBN: 9781285743615

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BuyFindarrow_forward

Accounting (Text Only)

26th Edition
Carl Warren + 2 others
ISBN: 9781285743615
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 Receivable
  2. 2. Commissions Earned
  3. 3. Notes Payable
  4. 4. Patricia Mayer, Capital
  5. 5. Rent Revenue
  6. 6. Wages Expense

To determine

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 account Normal balance
Asset account Debit balance
Liability account Credit balance
Expense account Debit balance
Revenue account Credit balance
Dividend account Debit balance

Table (1)

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.

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

1.

  • Accounts receivable arise when the sales are made on account.
  • As accounts receivable is debited when goods, and services are sold on account, and accounts receivable is credited when the payment is received from the customers, it is likely to have both debit and credit entries.
  • Accounts receivable account is an asset account, and hence, it has the normal debit balance.

2.

  • Commissions earned are the revenues to the company.
  • Commissions earned are credited as they are the revenue account. If they are debited, then it becomes an expense. Hence, commissions earned will have only credit entries.
  • Commissions earned are the revenue accounts, and hence, they have the normal credit balance.

3.

  • Notes Payable is a written promise to pay a certain amount on a future date, with certain percentage of interest. Companies use to issue notes payable to meet short-term financing needs.
  • As notes payable is debited when a promised amount with interest is received, and it is credited when a liability arises to pay a certain sum of money in the future, hence, it is likely to have both debit and credit entries.
  • Notes payable increases the liabilities account, and hence, it has the normal credit balance...

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