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Rules of debit and credit The following table summarizes the rules of debit and credit. For each of the items A through L, indicate whether the proper answer is a debit or a credit. Increase Decrease Normal Balance Balance sheet accounts: Asset A B Debit Liability C Debit D Stockholders’ equity: Common Stock Credit E F Retained Earnings G H Credit Dividends Debit Credit 1 Income statement accounts: Revenue J K Credit Expense L Credit Debit

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Corporate Financial Accounting

14th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781305653535

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Section
BuyFindarrow_forward

Corporate Financial Accounting

14th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781305653535
Chapter 2, Problem 2.4EX
Textbook Problem
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Rules of debit and credit

The following table summarizes the rules of debit and credit. For each of the items A through L, indicate whether the proper answer is a debit or a credit.

Increase Decrease Normal Balance
Balance sheet accounts:
Asset A B Debit
Liability C Debit D
Stockholders’ equity:
Common Stock Credit E F
Retained Earnings G H Credit
Dividends Debit Credit 1
Income statement accounts:
Revenue J K Credit
Expense L Credit Debit

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:

“An increase in an asset account, an increase in an expense account, a decrease in liability account, and a decrease in a revenue account should be debited.

Similarly, an increase in liability account, an increase in a revenue account and a decrease in an asset account, a decrease in an expenses account should be credited”.

To indicate: Whether the proper answer is debit or credit.

Explanation of Solution

  • In balance sheet accounts, when there is an increase in assets, it should be debited. When there is a decrease in assets, it should be credited. The asset account shows a normal balance of debit. Similarly, when there is an increase in liability, it should be credited.  When there is a decrease in liability, it should be debited. The liability account shows a normal balance of credit.
  • When capital is increased, it should be credited. Similarly, when capital is decreased, it should be debited. The capital account shows a normal balance of credit...

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Chapter 2 Solutions

Corporate Financial Accounting
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