Normal Balances & the Accounting Cycle

Normal Balance of Owners Equity (Capital)

Normal balance of a Capital account is credit. To increase, we credit to decrease we debit Ex: T. Smith, Capital

Normal Balance of OE (Withdrawal)

Normal balance of a Drawing account is debit. To increase, we debit to decrease we credit Ex: T. Smith, Drawing

Normal Balance of Revenue

Normal balance of a Revenue account is credit. To increase, we credit to decrease we debit Ex: Fees Income or Earned, Sales Revenue

Adjusted trial balance

a list of accounts and their balances after all adjustments have been made

General Ledger

a permanent record organized by chart of account numbers where all account balances are recorded.

Trial balance

a proof of the equality of debits and credits in a general ledger before adjustments are made and recorded.

Closing entries

journal entries used to prepare temporary accounts for a new fiscal period

Normal Balance of Liabilities

Normal balance of a liability account is credit. To increase, we credit to decrease we debit Ex: Accounts Payable, Notes Payable

Normal Balance of Expense

Normal balance of an Expense account is debit. To increase, we debit to decrease we credit Ex: Advertising, Utilities, Rent, Wages/Salaries

Normal Balance of Assets

Normal balance of an asset account is debit. To increase, we debit to decrease we credit Ex: Cash, Accounts Receivable, Building, Supplies, Equipment

Post AJE

Posting adjustments to the G/L when they are made and recorded.

Post closing G/L

Posting balances after temp accounts are closed

Financial Statements

prepared based on current accounting cycle activities.

General Journal

All transactions of a business are recorded.

post-closing trial balance

Balances of permanent accounts after closing entries.

Adjusting entries (AJE)

Transactions effected during multiple account periods which are either allocated or accrued.