Indicate whether a debit or credit decreases the normal balance of each of the following accounts:
Linking debit or credit with normal balance)
a. Office Supplies
b. Repair Services Revenue
c. Interest Payable
d. Accounts Receivable
e. Salaries Expense
f. Owner Capital
g. Prepaid Insurance
h. Buildings
i. Interest Revenue
j. Owner Withdrawals
k. Unearned Revenue
l. Accounts Payable
I am completely lost on this. I do not understand what I am even being asked to do. Can someone explain this to me on what I am to do, and how I am to do it? I need this explained to me in simpliar terms so that I understand it better, any help would be greatly appreciated!!! okay, this is really easy but it has to be exlained in a really easy way to make it comprehendable.
1)
forget your general understanding of what debit and credit means. these terms are used for many things in our life but often don't reflect their actual meaning in business terms. for now, all you need to know and should associate with the terms are:
debit = left
credit = right
that's why all "debit accounts" are stated on the LEFT side of the balance sheet (under Assets), and all "credit accounts" are stated on the RIGHT side of the balance sheet (under Liabilities, as well as Stockholder's Equtiy).
the other important thing to know:
if you debit a debit = it will increase
if you credit a debit = if will decrease
if you credit a credit = it will increase
if you debit a credit = it will decrease
might sound complicated now, but it will soon be as easy as saying the abc...
2)
the lettered categories you posted above are all different kinds of accounts. Each one is either a debit or a credit account.
3)
you start by deciding: is this account a debit or a credit account? if you're not sure you have two ways to find out.
Generally, all debit accounts are accounts of ressources that belong to your company and which your company can use (to make further business). You find these accounts on the left side of the balance sheet.
All credit accounts are accounts (and an account is basically a sum of money) that the company owes to a creditor, such as a bank, or a shareholder. You find these accounts on the right side of the balance sheet.
You can also look up on a standart balance sheet form, what kind of account is on which side.
for example:
a. offcie supplies -- are obviously tangeable things that your company owns, such as paper, printers, pens. thus, it is a debit account.
l. accounts payable -- is the amount you owe to someone else, or another company. thus it is a credit account; you would find it on the right side of the balance sheet, the credit side, under the liabilities section.
4) now remember that debiting a debit account increases it, and crediting decreases it. now just go along the list and check each account for what it is and then if you need to credit or debit it in order to decrease the normal balance.
5) lets find the solutions to all the accounts that don't end with "revenue" or "expense" in their name (we will do these accounts later on)
a) office supplies (debit accounts) = credit (will decrease balance)
c) interest payable (credit account) = debit (will decrease balance)
d) accounts receivable (debit acc.) = credit
g) prepaid insurance (debit) = credit
h) buildings (debit) = credit
l) accounts payable (credit) = debit
-------------------------
now about revenue and expense accounts:
aks your professor why, but these two types of accounts, unless they are prepaid, are listed under retained earnings on the right side of the balance sheet, the credit side. they are listed under the category "retained earnings." now, since revenues increase your earnings and expenses decrease your earnings,
revenue accounts are credit accounts
and
expense accounts are debit accounts (because if you debit a credit account, it will decrease, and if you debit expenses, that will decrease your retained earnings).
thus:
b) repair services revenue (credit) = debit
e) salaries expense (debit) = credit
f) owner capital (credit) = debit
i) interest revenue (credit) = debit
k) unearned revenue (credit) = debit
--------------------------------------...
I hope this all made sense to you!!!
I can recommend the book Financial Accounting by Libby, Libby and Short (published by McGraw-Hill) - that's our textbook (Boston University) and it has a lot of good examples (generally, the only way to understand accounting is by doing a **** load of examples over and over again.)
i never heard of the j) owner's withdrawals account though, so I hope someone else has an answer on it!
good luck! a. credit
b. credit
c. debit
d. credit
e. debit decrease, but its an expense so that answer means that it decreases your profit, not your expenses
f. credit
g. credit
h. not sure
i. credit
j. debit
k. credit
l. debit
I havent taken accounting in a while but im pretty sure thats right By balance they mean the amount in the account...it could be an amount you owe (as in accounts payable, which is where money going out of a company is tracked) or an amount owed you (as in accounts receivable where money coming in is tracked.) If it is a money-coming-in account, then a credit increases the balance because credits add money. If it is a money-going-out- account, debits increase the balance because a debit subtracts money.
Another way of thinking of it is outgoing accounts have negative dollars in them, and incoming accounts have positive dollars. They want to know for each account, is it negative (so a debit makes the account balance bigger) or postive dollars (so a credit makes it bigger.)
This question is testing if you know what debit means vs. credit and if an account is an outgoing or incoming. Some are ambiguous. Office supplies is usually outgoing...you spend money to get office supplies for an office, but if your company sells office supplies then it could be a money-coming-in-account; that is a smart alecky interpretation and more imaginative than accountancy is supposed to be .
Probably the different accounts are defined as incoming or outgoing in your text book.
Hey! You're a cutie! Too bad I am prolly old enough to be your creepy uncle who still lives in grandma's basement (though I acutally live in a house with my boy.)
Best of luck!! |
