Chapter2. The Recording Process Debits Credit Having learned the accounting equation, Increase assets Decreases Liabilities Decreases assets Increase Liabilities ASSETS = LIABILTIES + OWNER'S EQUITY Active = Passive + CAPITAL Normal balance sheets of accounts that are assets, liabilities and owner's equity. And identify and recognize the financial statements that are created from the product of economic activities that are identified by a transaction. We need to start shaping, recording and communicating economic information to internal and external users. For this reason, Assets, Liabilities (Liabilties) and Capital (Owner's Equity) will become up cuestas with names that will give identity and identification to transactions. Assets Debit for Credit for increase Liabilities Credit for increase Debit for decrease decrease Some examples: Nomal Balance Normal Balance Owner's Liabilities →Account Payable Wages Payable Loan Payable Assets →Cash Equity Capital Accounts Receivable Supplies Land Revenue Fees Earned + Service Revenue Drawings-Withdrawal Expenses-Salaries Expenses -Utilities Expenses -Gas Expenses Miscellaneous Exp. Equipment Owner's Equity Debit for| Credit for Revenue Debit for Credit for incrедце decrease Dr increase decrease Dr Normal Balance Normal Balance that is recognized as asset, Accounts (account) is an accounting record of increase and decrease in an item liabilities, and owner's equity. From now on accounts will not be recognized through the accounting equation but through T accounts. Recognition through T accounts is where you indicate how which side increases and on which side it decreases. Expenses Debit for increase Dr Normal Balance Title of Accounts Len Credit for decrease Drawing Debit for increase Dr Normal Balance Credit for decrease Cr Left or deb side Dr Right or crodi side Cr For this reason, transactions are recognized through an extended arm method by identifying Taccounts on the left side (Dr.) and right side (Cr). They result in transactions having one or more accounts giving the evolution of equal debits and credits provides the basis for creating the dual entry system of posting transactions. This method provides a logic for recording transactions and helps to be sure of the accuracy of the quantity as well as the detection oferrores. Si cada transacción registrada con débitos y créditos, la suma de todos los débitos de las cuentas debe ser igual a la suma de todos los créditos. That is why from now on we will apply the following debit and credit process will be recognized as normal account balances; Multiple choices: 1. Which of the following statements about an account is true? a. The right side of an account is the debit or increase side. b. An account is an individual accounting record of increases and decreases in specific asset, liability, and owner's equity items. c. There are but only one accounts for owner's equity items. d. The left side of an accounts is the credit or decrease side. 2. Debits; a. increase both assets and liabilities b. decrease both assets and liabilities c. increase assets and decrease liabilities d. decrease assets and decrease liabilities 3. A revenue account; a. is increased by debits b. is decreased by credits c. has a normal balance of a debit d. is increased by credits 4. Account that normally have debit balances are: a. assets, expenses, and revenue b. assets, expenses, and owner's equity c. assets, liabilities, and owner's drawings d. assets, owner's drawings, and expenses 5. Expenses; a. is increased by debits b. is decreased by credits c. has a normal balance of a debit d. is increased by credits 6. Account payable; a. is increased by debits b. is decreased by credits c. has a normal balance of a credit d. none all above 7. Supplies; a. has a normal balance of a debit b. is decreased by debit c is increased by credits d. is increased by debits and credits