Concept explainers
Debit/credit terminology
Required
For each of the following independent events, identify the account that would be debited and the account that would be credited. The accounts for the first event are identified as an example.
- a. Received cash by issuing common stock.
- b. Received cash for services to be performed in the future.
- c. Provided services on account.
- d. Paid accounts payable.
- e. Paid cash in advance for one year’s rent.
- f. Paid cash for operating expenses.
- g. Paid salaries payable.
- h. Purchased supplies on account.
- i. Paid cash dividends to the stockholders.
- j. Recognized revenue for services completed; previously collected the cash in Event b.
- k. Received cash in payment of
accounts receivable . - l. Paid salaries expense.
- m. Recognized expense for prepaid rent that had been used up by the end of the accounting period.
Indicate the accounts that would be debited and credited for the given transactions.
Explanation of Solution
Rules of Debit and Credit: Following rules are followed for debiting and crediting different accounts while they occur in business transactions:
- Debit, all increase in asset, expenses and dividends, all decrease in liabilities, revenues and stockholders’ equities.
- Credit, all increase in liabilities, revenues, and stockholders’ equities, all decrease in asset, expenses.
Indicate the accounts that would be debited and credited for the given transactions as follows:
Event | Account debited | Account credited |
a. Received cash by issuing common stock. | Cash | Common Stock |
b. Received cash for services to be performed in the future. | Cash | Unearned Revenue |
c. Provided services on account. | Accounts Receivable | Service Revenue |
d. Paid accounts payable. | Accounts Payable | Cash |
e. Paid cash in advance for one year’s rent. | Prepaid Rent | Cash |
f. Paid cash for operating expenses. | Operating Expenses | Cash |
g. Paid salaries payable. | Salaries Payable | Cash |
h. Purchased supplies on account. | Supplies | Accounts Payable |
i. Paid cash dividends to the stockholders. | Dividends | Cash |
j. Recognized revenue for services completed; previously collected the cash in Event b. | Unearned Revenue | Service Revenue |
k. Received cash in payment of accounts receivable. | Cash | Accounts Receivable |
l. Paid salaries expense. | Salaries Expense | Cash |
m. Recognized expense for prepaid rent that had been used up by the end of the accounting period. | Rent Expense | Prepaid Rent |
Table (1)
a. Received cash from the issue of common stock: In this transaction, cash and common stock accounts are affected. Cash is an asset account, and issuance of common stock increases the value of cash account. Hence, cash account is debited. Common stock is a component of stockholder’s equity, and it increases the value of stockholders’ equity. Hence, common stock is credited.
b. Received cash for services to be performed in the future: In this case, cash and unearned revenue accounts are affected. Cash is an asset account, and the receipt of cash increases the value of cash account. Hence, cash account is debited. Unearned service revenue is a liabilities account, and it increases the liability account. Hence, unearned revenue account is credited.
c. Provided services on account: In this transaction, accounts receivable and service revenue accounts are affected. Accounts receivable is an asset account, and service provided on account increases the value of account receivable. Hence, accounts receivable account is debited. Service revenue is a revenue account, and it increases the value of stockholder’s equity. Hence, service revenue account is credited.
d. Paid accounts payable: In this transaction, accounts payable and cash accounts are affected. Accounts payable is a liabilities account and it decreases the value of accounts payable. Hence, accounts payable is debited. Cash is an asset account, and payment to accounts payable in cash decreases the value of cash account. Hence, cash account is credited.
e. Paid cash in advance for one year’s rent: In this transaction, rent expense and cash account are affected. Rent expense is an expense account and it decreases the value of stockholder’s equity. Hence, rent expense account is debited. Cash is an asset account and payment of rent expense decreases the value of cash account. Hence, the cash account is credited.
f. Paid cash for operating expense: In this transaction, operating expense and cash accounts are affected. Operating expense is an expense account, and it decreases the value of stockholder’s equity. Hence, operating expense account is debited. Cash is an asset account, and cash paid for operating expense decreases the value of cash. Hence, cash account is credited.
g. Paid salaries payable: In this case, salaries payable and cash accounts are affected. Salaries payable is a liabilities account, and it decreases the value of salaries payable account. Hence, salaries payable account is credited. Cash is an asset account, and salaries paid will decrease the value of cash account. Hence, cash account is credited.
h. Purchased supplies on account: In this transaction, supplies and accounts payable accounts are affected. Supplies are an asset account; the purchase of supplies increases the value of supplies account. Hence, supplies account is debited. Accounts payable is a liabilities account, and purchase of supplies on account increases the value of accounts payable. Hence, accounts payable account is credited.
i. Cash dividends paid to stockholders: In this transaction, dividends and cash accounts are affected. Dividends are a component of stockholder’s equity and it decreases the value of stockholder’s equity. Hence, dividends account is debited. Cash is an asset account, and payment of cash dividend decreases the value of cash account. Hence, cash account is credited.
j. Recognized revenue for prior service: In this transaction, unearned revenue and service revenue accounts are affected. Unearned revenue is a liabilities account, and it decreases the value of unearned revenue. Hence, unearned revenue account is debited. Service revenue is a revenue account, and it increases the value of stockholder’s equity. Hence, service revenue account is credited.
k. Cash received from accounts receivable: In this transaction, cash and accounts receivable accounts are affected. Cash is an asset account, and it increases the value of cash account. Hence, cash account is debited. Accounts receivable is an asset account, and it decreases the value of accounts receivable. Hence, accounts receivable account is credited.
l. Recognized salaries expense: In this transaction, salaries expense and cash accounts are affected. Salaries expense is an expense account, and it decreases the value of stockholder’s equity. Hence, salaries expense account is debited. Cash is an asset account, and cash paid for salaries expense decreases the value of cash. Hence, cash account is credited.
m. Recognized expense for prepaid rent that had been used up by the end of the accounting period: In this transaction, rent expense and prepaid expense are affected. Rent expense is an expense account and it decreases the value of stockholder’s equity. Hence, rent expense account is debited. Prepaid rent is an asset account and it decreases the value of prepaid rent account. Hence, the prepaid rent account is credited.
Want to see more full solutions like this?
Chapter B Solutions
Survey Of Accounting
- Identify whether each of the following transactions, which are related to revenue recognition, are accrual, deferral, or neither. A. sold goods to customers on credit B. collected cash from customer accounts C. sold goods to customers for cash D. collected cash in advance for goods to be delivered laterarrow_forwardFrom the following list, identify which items are considered original sources: A. accounts receivable B. receipt from post office for post office box C. purchase order D. general ledger E. adjusted trial balance F. statement of retained earnings G. electric bill H. packing slip I. company expense account J. statement of cash flowsarrow_forwardThe sum of all the accounts in the accounts receivable subsidiary ledger should ________. A. equal the accounts receivable account balance in the general ledger before posting any amounts B. equal the accounts payable account balance in the general ledger before posting any amounts C. equal the accounts receivable account balance in the general ledger after posting all amounts D. equal the cash account balance in the general ledger after posting all amountsarrow_forward
- If a journal entry includes a debit or credit to the Cash account, it is most likely which of the following? A. a closing entry B. an adjusting entry C. an ordinary transaction entry D. outside of the accounting cyclearrow_forwardFor each of the transactions, state which special journal (sales journal, cash receipts journal, cash disbursements journal, purchases journal, or general journal) and which subsidiary ledger (Accounts Receivable, Accounts Payable, or neither) would be used in recording the transaction. A. Paid utility bill B. Sold inventory on account C. Received but did not pay phone bill D. Bought inventory on account E. Borrowed money from a bank F. Sold old office furniture for cash G. Recorded depreciation H. Accrued payroll at the end of the accounting period I. Sold inventory for cash J. Paid interest on bank loanarrow_forwardNORMAL BALANCE OF ACCOUNT Indicate the normal balance (debit or credit) for each of the following accounts: 1. Cash 2. Rent Expense 3. Notes Payable 4. Owners Drawing 5. Accounts Receivable 6. Owners Capital 7. Toolsarrow_forward
- Which of the following pairs of accounts are impacted the same with debits and credits? A. Cash and Unearned Service Revenue B. Electricity Expense and Office Supplies C. Accounts Receivable and Accounts Payable D. Buildings and Common Stockarrow_forwardA bank statement a. is a bill from the bank for services rendered b. is a credit reference letter written by the company's bank C. shows a company the financial position of the bank as of a certain date d. shows the activity that increased or decreased the company's account balancearrow_forwardSUBJECT: Financial Accounting and Reporting Instruction: Choose the Debit and Credit Accounts of the following transactions. TRANSACTION: Opened an account with Bank and made initial deposit1. Debit *a. Cash In Bankb. Accounts Receivablec. Unused Laundy Suppliesd. Prepaid Insurancee. Equipmentf. Accounts Payableg. Unearned Incomeh. Amora, Drawingi. Amora, Capitalj. Service Incomek. Salaries ExpenseL.Taxes and Licensesm.Transportation 2. Credit *a. Cash In Bankb. Accounts Receivablec. Unused Laundy Suppliesd. Prepaid Insurancee. Equipmentf. Accounts Payableg. Unearned Incomeh. Amora, Drawingi. Amora, Capitalj. Service Incomek. Salaries ExpenseL.Taxes and Licensesm.Transportation TRANSACTION: Bought Equipment on Account3. Debit *a. Cash In Bankb. Accounts Receivablec. Unused Laundy Suppliesd. Prepaid Insurancee. Equipmentf. Accounts Payableg. Unearned Incomeh. Amora, Drawingi. Amora, Capitalj. Service Incomek. Salaries ExpenseL.Taxes and Licensesm.Transportation 4. Credit *a. Cash In…arrow_forward
- Which journal entries is correct when a business entity collects an accounts receivable? A. Cash - debit. Accounts receivable - credit. B. Accounts receivable- debit. Service revenue - credit. C. Cash- debit. Accounts Payable- credit. D. Cash -debit. Notes payable - credit.arrow_forwardThe journal entry to record a particular business transaction includes a debit to a liability account. This transaction is most likely also to include: a A cash receipt. b The purchase of an asset on account. c A cash payment. d A credit to Accounts Receivable.arrow_forwardUnder the accrual basis of accounting - if cash has been received before the revenue has been earned, which of the following journal entries should be recorded? A) Debit Cash, Credit Unearned Revenue. B) Debit Cash, Credit Sales Revenue. C) Debit Unearned Revenue, Credit Cash. D) Debit Cash, Credit Accounts Receivable.arrow_forward
- Principles of Accounting Volume 1AccountingISBN:9781947172685Author:OpenStaxPublisher:OpenStax CollegeCollege Accounting, Chapters 1-27AccountingISBN:9781337794756Author:HEINTZ, James A.Publisher:Cengage Learning,Financial AccountingAccountingISBN:9781305088436Author:Carl Warren, Jim Reeve, Jonathan DuchacPublisher:Cengage Learning
- Financial AccountingAccountingISBN:9781337272124Author:Carl Warren, James M. Reeve, Jonathan DuchacPublisher:Cengage LearningCollege Accounting (Book Only): A Career ApproachAccountingISBN:9781337280570Author:Scott, Cathy J.Publisher:South-Western College Pub