Summary of Normal Balances

Question 1

Assets

Answer 1

Normal balance: debit
Increased by: debits

Question 2

Liabilities

Answer 2

Normal balance: credit
Increased by credits

Question 3

Common Shares

Answer 3

Normal balance: credits
Increased by credits

Question 4

Retained Earnings

Answer 4

Normal balance: credits
Increased by credits

Question 5

Revenue

Answer 5

Normal balance: credits
Increased by credits

Question 6

Expenses

Answer 6

Normal balance: debit
Increased by: debits

Question 7

Dividends Declared

Answer 7

Normal balance: debit
Increased by: debits

Question 8

The normal balance of an account is always on it ____ side

Answer 8

Increase

Question 9

How are assets increased and what is their normal balance?

Answer 9

Assets are increased by debits (left side of T account).
Normal balance: Debit balance

Question 10

How are liabilities and shareholders’ equity increased and what is their normal balance?

Answer 10

Liabilities and shareholders’ equity are increased by credits (right side of T account).
Normal balance: Credit balance

Question 11

How is shareholders’ equity divided and how are increases recorded?

Answer 11

Shareholders’ equity is divided into common shares and retained earnings.
Increases in both common shares and retained earnings are recorded by credits.
Both have a normal credit balance.

Question 12

What makes up retained earnings and how do they affect shareholders’ equity

Answer 12

Retained earnings are divided into revenues, expenses, and dividends declared.
Revenues increase retained earnings, while expenses and dividends declared decrease retained earnings, affecting shareholders’ equity.

Question 13

How are revenues, expenses, and dividends declared recorded?

Answer 13

Revenues increase retained earnings, recorded by credits (normal credit balance).
Expenses and dividends declared decrease retained earnings, recorded by debits (normal debit balance).