Normal Balances Practice Problem - BUS–A 201, Indiana University--Bloomington

7. Normal Balances

in Topic 3 (Problem 7 of 9)

Moderate

For each account listed below, mark whether it has a debit or credit normal balance.

Account	Debit	Credit
Revenues Correct Incorrect Revenues increase Income. An increase in Income increases Retained Earnings. An increase in Retained Earnings is a credit. Therefore Revenues are credits.
Assets Correct Incorrect Assets live on the left side of the accounting equation and are therefore normal debit accounts. They are also the A in the DEAD acronym.
Retained Earnings Correct Incorrect Retained Earnings lives on the right side of the accounting equation, as a part of Owner's Equity, and are therefore credits.
Inventory Correct Incorrect Inventory is an asset, and assets are debited
Prepaid Insurance Correct Incorrect Prepaid Insurance is an asset, and assets are debited
Prepaid Rent Correct Incorrect Prepaid Rent is an asset, and assets are debited
Prepaid Expenses Correct Incorrect Prepaid Expenses is an asset, and assets are debited
Accounts Receivable Correct Incorrect Accounts Receivable is an asset, and assets are debited
Expenses Correct Incorrect Expenses decrease Income. A decrease in Income decreases Retained Earnings. A decrease in Retained Earnings is a debit. Therefore Expenses are debits. Also, Expenses are in the E in the DEAD acronym.
Insurance Expense Correct Incorrect Insurance Expense is an Expense, and Expenses are debited
Accounts Payable Correct Incorrect Accounts Payable are Liabilities and Liabilities are credited.
Cost of Goods Sold Correct Incorrect Cost of Goods Sold is an Expense, and Expenses are debited
Dividends Correct Incorrect Dividends decrease Retained Earnings. A decrease in Retained Earnings is a debit. Therefore Dividends are debits. Also, Dividends are in the D in the DEAD acronym.
Land Correct Incorrect Land is an asset, and assets are debited
Liabilities Correct Incorrect Liabilities live on the right side of the accounting equation and are therefore normal credit accounts. They are also the opposite of Assets, if that helps you remember.
Cash Correct Incorrect Cash is an asset, and assets are debited
Notes Payable Correct Incorrect Notes Payable are Liabilities and Liabilities are credited.
Rent Expense Correct Incorrect Rent Expense is an Expense, and Expenses are debited
Capital Stock Correct Incorrect Capital Stock lives on the right side of the accounting equation, as a part of Owner's Equity, and are therefore credits.