Chapter 2, Problem 21Q

To determine

Double-entry system:

The double-entry system of bookkeeping means that every business transaction involves two accounts. Every transaction results in at least two changes in the financial position of the business at a time. This makes it significant for both the transactions to be recorded, using the “rules of debit and credit.” One effect is termed as debit and the other is termed as credit.

Procedure for debiting and crediting an account:

• Increase in assets account, decrease in stockholders’ equity account, and decrease in liabilities account should be debited.
• Decrease in assets account, increase in stockholders’ equity account, and increase in liabilities account should be credited.

Rules of accounting:

• Personal account: Debit the receiver and credit the giver
• Real account: Debit the assets and credit the liabilities
• Nominal account: Debit all expenses and loses and credit all incomes or profits

The normal balances for A’s cash, accounts payable, and interest expense accounts.