Which of the following is true regarding normal balances of accounts?

Joshua Scott invests $40,000 into his new business. How would the journal entry for his transaction be entered in the journal?
a. Cash 40,000
Joshua Scott, Capital 40,000
Invested cash in business
b. Cash 40,000
Joshua Scott, Capital 40,000
Invested cash in business c. Joshua Scott, Capital 40,000
Cash 40,000
Invested cash in business
d. Joshua Scott, Loan 40,000
Cash 40,000
Invested cash in business

Table of Contents Show

Prerequisites
Introduction to Normal Balances
Requirements and Best Practices
What are the normal balances of these accounts?
Which of the following types of accounts have normal credit balance?
Which of the following accounts has a normal credit balance quizlet?
Which of the following describes the classification and normal balance of fees earned account?

An overpayment error was discovered in computing and paying the wages of a Jamison Tree Trimming employee. When Jamison receives cash from the employee for the amount of the overpayment, which of the following entries will Jamison make?
a. Cash, debit; Wages Expense, credit
b. Wages Payable, debit; Wages Expense, credit
c. Wages Expense, debit, Cash, credit
d. Cash, debit; Wages Payable, credit

Sets with similar terms

Prerequisites

Prior to reading the standard Normal Balances, it is beneficial to review the below sections to gain foundational information:

Roles and Responsibilities Section
Accounting Fundamentals – Accounting Terminology Section
Accounting Fundamentals – Accounting Principles Section

Preface

This section discusses fundamental concepts as they relate to recordkeeping for accounting and how transactions are recorded internally within Indiana University. Information presented below walks through specific accounting terminology, debit and credit, as well as what are considered normal balances for IU.

Introduction to Normal Balances

What are Debits and Credits?

Entities make financial transactions on a day-to-day basis in order to continue running business operations. When accounting for these transactions, two entries must be made: a debit and a corresponding credit.

Debits and credits are what make up journal entries in a general ledger. Debits and credits either increase or decrease the following accounts: asset, liability, fund balance, revenue, and expense. The following chart shows the direction of debits and credits in various accounts as well as each account’s normal balance.

Account	Normal_Balance	To_Increase	To_Decrease
Assets	Debit	Debit	Credit
Liabilities	Credit	Credit	Debit
Fund Balance	Credit	Credit	Debit
Revenues	Credit	Credit	Debit
Expenses	Debit	Debit	Credit

Debits and credits differ in accounting in comparison to what bank users most commonly see. For example, when making a transaction at a bank, a user depositing a $100 check would be crediting, or increasing, the balance in the account. But for accounting purposes, this would be considered a debit. While the two might seem opposite, they are quite similar. Breaking down the above example of depositing a $100 check from both perspectives - banking and accounting, users can see, that while it appears as a “credit” to the user depositing the check, it is really just the bank’s off-set to the receipt of the check.

What are Normal Balances?

To better visualize debits and credits in various financial statement line items, T-Accounts are commonly used. Debits are presented on the left-hand side of the T-account, whereas credits are presented on the right. Included below are the main financial statement line items presented as T-accounts, showing their normal balances.

Income Statement T-Accounts:

A normal balance is the side of the T-account where the balance is normally found. When an amount is accounted for on its normal balance side, it increases that account. On the contrary, when an amount is accounted for on the opposite side of its normal balance, it decreases that amount.

Balance Sheet T-Accounts:

Within IU’s KFS, debits and credits can sometimes be referred to as “to” and “from” accounts. These accounts, like debits and credits, increase and decrease revenue, expense, asset, liability, and net asset accounts.

Debit and Credit Examples

Below is a basic example of a debit and credit journal entry within a general ledger.

This general ledger example shows a journal entry being made for the collection of an account receivable. Because both accounts are asset accounts, debiting the cash account $15,000 is going to increase the cash balance and crediting the accounts receivable account is going to decrease the account balance. When we sum the account balances we find that the debits equal the credits, ensuring that we have accounted for them correctly.

To show how the debit and credit process works within IU’s general ledger, the following image was pulled from the IUIE database. Employees who are responsible for their entity’s accounting activities will see a file such as the one below on more of a day-to-day basis. This general ledger example shows a journal entry being made for the payment (cash) of postage (expense) within the Academic Support responsibility center (RC).

This transaction will require a journal entry that includes an expense account and a cash account. Note, for this example, an automatic off-set entry will be posted to cash and IU users are not able to post directly to any of the cash object codes. Because postage was purchased for $12.70, cash, an asset account, will be credited, which will decrease the cash balance by $12.70. Contrarily, purchasing postage is an expense, and therefore will be debited, which will increase the expense balance by $12.70. When the account balances are summed, the debits equal the credits, ensuring that the Academic Support RC has accounted for this transaction correctly.

Requirements and Best Practices

This section outlines requirements and best practices related to Accounting Fundamentals – Normal Balances. While not required, the best practices outlined below allows users to gain a better picture of the entity’s financial health and help identify potential issues on a more frequent basis. This allows organizations to identify errors, mistakes and pitfalls which can be remedied quickly and prevent larger issues in the future.

Requirements

Review all the Normal Balances standard listed within the document to gain pertinent knowledge of accounting at IU. After reviewing, if users have questions, reach out to the campus office or the Accounting and Reporting Services team at .

What are the normal balances of these accounts?

The normal balance of an account is the side of the account that is positive or increasing. The normal balance for asset and expense accounts is the debit side, while for income, equity, and liability accounts it is the credit side.

Which of the following types of accounts have normal credit balance?

The normal balance of both revenue and liabilities accounts is a credit balance.

Which of the following accounts has a normal credit balance quizlet?

Which of the following accounts normally has a credit balance? Rationale:Assets, dividend, and expense accounts normally have debit balances, whereas liabilities, common stock, and revenue accounts normally have credit balances.

Which of the following describes the classification and normal balance of fees earned account?

Answer choice: d. The fees earned account has a normal credit balance and is a revenue account. It is increased with a credit and decreased by a debit.