The rules of debit and credit operationalize the accounting equation, enabling its practical application. The location of the elements and the need to keep the equation in balance with every transaction are the two parameters that framed the rules, which are the first steps in the recording process.
Debit and credit refer to the left side and right side of the accounting equation, respectively. They do not necessarily mean to add or deduct, although they correctly substitute for those operations based on the normal balance of the elements involved in the transaction.
Debit and credit are also action words. When a transaction occurs, an account is either debited or credited.
One of the easiest to comprehend and remember, the concept of the normal balance is the key to understanding the rules of debit and credit. It is determined by the location of the element of financial statements in the accounting equation. The element on the left or debit side (asset) has a normal debit balance. The elements on the right or credit side (liability and equity) have normal credit balances.
Accounts are the physical records where transactions of similar nature and effect on an element are posted and summarized. They have the same characteristics as their parent elements. There is no limit to the number of accounts that can be created. Unique names can be assigned to accounts. A Chart of Accounts lists all accounts used in an accounting system, together with their descriptions and applications to transactions.
To add to an account with a normal debit balance, the transaction amount is recorded in the debit side (the account is debited); to deduct, the amount is recorded in the credit side (the account is credited).
To add to an account with a normal credit balance, the transaction amount is recorded in the credit side (the account is credited); to deduct, the amount is recorded in the debit side (the account is debited).
The double entry system requires that for every debit there must be a corresponding credit. This refers to the total amount of debits and credits for a transaction, not the number of accounts. This system ensures that the accounting equation will always be in balance. The double entry system is an application of the rules of debit and credit.
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An expense account, Salaries, is debited. The account will
The rules of debit and credit and the double entry rule are the same.
Normal balance is determined by the
A transaction credited $500 to Interest Income. The account will
The rules of debit and credit specify whether an element is debited or credited, depending on its normal balance.
Which of the following statements is correct?
Loans payable was debited for payment to the bank. The account will
If a transaction does not have equal debits or credits, which scenarios are possible?
Which of the following apply to nominal accounts?
What is the effect on elements of financial statements for collection of interest on notes receivable?
If elements are moved in the accounting equation by moving assets to the debit side, and liabilities and equity to the credit side, the rules of debit and credit need not change as long as the equation is in balance. Assets will now be credited for increases and debited for decreases. Why is this never done?
Which of the following apply to real accounts?
Which of the following applies when owners contribute additional capital to the business?
The company sold unused, empty containers. Which of the following applies?
The systematic arrangement and grouping of transactions and events affecting an element is called an _________.
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There are speculations that equality in accounting was inspired by philosophical discussions of the duality concept. A close analogy in accounting is the relationship between
The owner withdraws capital from the business. Which of the following applies?
A company offered land as payment of liability to the bank. What is the effect on elements of financial statements?
There are speculations that equality in accounting was inspired by philosophical discussions of the duality concept. A close analogy in accounting is the relationship between
Obligation for goods received is paid. Which of the following applies?
What elements of financial statements are affected for the cost of surgical supplies withdrawn from supply room used in a hospital operating room?
If every transaction has equal amounts of debits and credits, which of the following are correct statements?
A large hotel was not able to pay its obligations to a government bank. The bank converted the hotel’s debts to common shares in the hotel as settlement. In the records of the hotel, which of the following occurred?
What elements are affected for hospital billing to patient?
Which statements below are consistent with double-entry rule
The company lost its warehouse in a big fire. The building had no fire insurance. What are the effects on the elements of financial statements?
A company acquired a fleet of thirty delivery trucks. It executed a chattel mortgage in favor of the bank that provided financing for the trucks. What are the effects on financial statements?
The following statements are correct.
A law firm collected fees for legal services to a client. What are the effects on the elements of financial statements?
Salaries and commissions of salesmen were paid. What are the effects on financial statements?
What are correct rules of debit and credit in the following?
The double entry rule ensures that the accounting equation will always be in balance, as long as there are equal amounts of debits and credits.
What is the effect on elements of financial statements for payment of interest on notes payable?
Equality in accounting usually refers to
The company received the utility bill for December, due on January 10. What are the effects on the elements of financial statements?
A listing of all the accounts used in a company’s accounting system that serves as a reference for the recording process and ensures uniformity of account titles.
When stocks of raw materials are received in the warehouse from supplier on credit, which of the following applies?
Cash is received at a supermarket’s checkout counter for grocery sales.
Arrange the following according to their hierarchy in the financial statements structure, from the lowest to the highest.
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Rental for advertising billboard is paid. Which of the following applies?
What are the effects on the elements of financial statements for the cost of goods delivered to a customer?
What are the two types of accounts?
Accounts receivable was credited for collection from a customer. The account will
What are the effects on financial statements for major building repairs? Assume all were paid in cash.
Double entry means that for every transaction, there must be at least one debit and at least one credit, with equal amounts.
A chart of accounts ensures uniformity of account titles and serves as a reference for accounts to be used in recording transactions.
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