Accounting Ch 2

Debit

The left side of an account.

liability accounts

normally show credit balances. That is, credits to a liability account should exceed debits to that account

Asset accounts

normally show debit balances. That is, debits to a specific asset account should exceed credits to that account

revenue accounts

increased by credits and decreased by debits. Because revenues increase owner's equity, a revenue account has the same debit/credit rules as the Owner's Capital account. Credits to revenue accounts should exceed debits. revenue accounts normally show credit balances.

expense accounts

increased by debits and decreased by credits. Expenses decrease owner's equity. Debits to expense accounts should exceed credits. expense accounts normally show debit balances.

Double-entry system

A system that records in appropriate accounts the dual effect of each transaction.

Normal balance

An account balance on the side where an increase in the account is recorded. Knowing the normal balance in an account may help you trace errors.

Owner's Drawings Account

An owner may withdraw cash or other assets for personal use. Withdrawals could be debited directly to Owner's Capital to indicate a decrease in owner's equity. This separate account makes it easier to determine total withdrawals for each accounting period. Owner's Drawings is increased by debits and decreased by credits. Normally, the drawings account will have a debit balance.

Owner's Capital account

Investments by owners are credited to the Owner's Capital account. Credits increase this account, and debits decrease it. When an owner invests cash in the business, the company debits (increases) Cash and credits (increases) Owner's Capital. When the owner's investment in the business is reduced, Owner's Capital is debited (decreased).

T-account

The basic form of an account, consisting of (1) a title, (2) a left or debit side, and (3) a right or credit side.

Credit

The right side of an account.

account

an individual accounting record of increases and decreases in a specific asset, liability, or owner's equity item