BUSINESS ADMINISTRATION
FINANCIAL ACCOUNTING
|
Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
|
|
|
are reported as credits
|
|
|
include current liabilities
|
|
|
are reported as debits
|
|
|
include noncurrent liabilities
|
Detailed explanation-1: -Assets and expenses have natural debit balances. This means that positive values for assets and expenses are debited and negative balances are credited. For example, upon the receipt of $1, 000 cash, a journal entry would include a debit of $1, 000 to the cash account in the balance sheet, because cash is increasing.
Detailed explanation-2: -Expenses and Losses are Usually Debited Expenses normally have debit balances that are increased with a debit entry. Since expenses are usually increasing, think “debit” when expenses are incurred. (We credit expenses only to reduce them, adjust them, or to close the expense accounts.)
Detailed explanation-3: -In short, because expenses cause stockholder equity to decrease, they are an accounting debit.
Detailed explanation-4: -Expenses cause owner’s equity to decrease. Since owner’s equity’s normal balance is a credit balance, an expense must be recorded as a debit. At the end of the accounting year the debit balances in the expense accounts will be closed and transferred to the owner’s capital account, thereby reducing owner’s equity.
Detailed explanation-5: -Typically, when reviewing the financial statements of a business, Assets are Debits and Liabilities and Equity are Credits.