Debits and Credits Flashcards
What are debits and credits?
Terms used by bookkeepers and accountants to record transactions in accounting records. Every transaction must be entered as a debit in one account and a credit in another.
This double-entry system ensures accuracy in financial statements.
What is an account in accounting?
A record that sorts transactions to keep a company’s financial data organized. Accounts are identified and listed in the chart of accounts.
The chart of accounts may contain as few as thirty accounts or as many as thousands.
List the order of accounts in the chart of accounts.
- Assets
- Liabilities
- Owner’s (Stockholders’) Equity
- Revenues or Income
- Expenses
- Gains
- Losses
What is a double-entry accounting system?
An accounting system where every business transaction affects at least two accounts.
Transactions may involve more than two accounts.
What does it mean to debit an account?
To enter an amount on the left side of the account.
What does it mean to credit an account?
To enter an amount on the right side of an account.
Which types of accounts are increased with a debit?
- Dividends (Draws)
- Expenses
- Assets
- Losses
Remember as D – E – A – L.
Which types of accounts are increased with a credit?
- Gains
- Income
- Revenues
- Liabilities
- Stockholders’ (Owner’s) Equity
Remember as G – I – R – L – S.
How do you decrease an asset account?
By crediting the account.
What are T-accounts used for?
As a visual aid to see the effect of a transaction or journal entry on two or more accounts.
What is a journal entry?
A record that lists the date, the account title(s) to be debited, and the corresponding amount(s), followed by the account title(s) to be credited and the corresponding amount(s).
Fill in the blank: Whenever cash is received, _______ Cash.
debit
What is the normal balance for asset accounts?
Debit
What is the normal balance for liability accounts?
Credit
What are contra accounts?
Accounts with balances that are opposite of the normal balance, such as contra revenue accounts which have debit balances.
What happens to revenues and gains in accounting?
They are recorded in accounts that normally have credit balances and are increased with a credit entry.
What is the normal balance for expense accounts?
Debit
What are permanent accounts?
Accounts not closed at the end of the accounting year; their balances carry forward to the next year.
What are temporary accounts?
Accounts that include revenue, expense, owner’s drawing, and income summary accounts, which have zero balances at the start of a new accounting year.
True or False: A company’s cash account is always credited when cash is paid out.
True
Fill in the blank: To increase an expense account, _______ the account.
debit
What happens to temporary accounts at the end of the accounting year?
Each temporary account will have a zero balance when the next accounting year begins.
What allows a company to report detailed information on revenues and expenses?
Having many revenue accounts and a huge number of expense accounts.
In banking, what does it mean when your checking account is credited?
The transaction will increase your checking account balance.
What happens to your checking account balance when your bank debits your account?
Your checking account balance decreases.
True or False: Debiting the Cash account in the general ledger always increases its balance.
True.
True or False: Crediting the Cash account in the general ledger always increases its balance.
False.
What entry does Debris Disposal make when it receives $100 in cash from a customer?
Debit Cash $100, Credit Unearned Revenues $100.
What is credited when Debris Disposal receives cash but has not yet earned it?
Unearned Revenues.
When Trustworthy Bank receives a $100 deposit, what are the entries in its general ledger?
Debit Cash $100, Credit Customers’ Checking Accounts $100.
What does a bank’s liability account reflect when it credits Customers’ Checking Accounts?
The bank’s obligation to return the money to the customer on demand.
What entries does Debris Disposal make when it receives a $1,000 wire transfer?
Debit Cash $1,000, Credit Accounts Receivable $1,000.
What happens when Trustworthy Bank charges Debris Disposal a monthly fee of $13?
Debit Customers’ Checking Accounts $13, Credit Service Charge Revenues $13.
What is the impact on Debris Disposal’s records when a bank service charge is applied?
Debit Bank Service Charges Expense $13, Credit Cash $13.
What types of accounts are reported as assets on a bank’s balance sheet?
Cash, Investment Securities, and Loans Receivable.
What type of accounts are reported as liabilities on a bank’s balance sheet?
Customers’ bank accounts including checking and savings accounts.
Define ‘Debit’ in accounting.
Means left.
Define ‘Credit’ in accounting.
Means right.
What must be true about the total amounts entered as debits and credits?
They must equal each other.
To increase an asset, you should _______ the asset account.
Debit
To increase a liability, you should _______ the liability account.
Credit
To increase revenues, you should _______ the revenues account.
Credit
What effect does a debit to an expense account have on owner’s equity?
Causes a decrease in owner’s equity.
What should you do when seeking assistance with accounting and tax reporting complexities?
Consult with accounting and tax professionals.
