ORIE 3150 class 3 - ORIE 3150 September 3, 2009 Textbook...

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ORIE 3150 September 3, 2009 Textbook errata: p. 113, Illustration 3-11 textbook: shows that a normal balance in Retained Earnings is on the credit side should be: the balance in Retained Earnings can be either on the debit side or on the credit side I. Double Entry Bookkeeping 1. Double Entry: each transaction is recorded with at least one debit and at least one credit. What are debits and credits? Debits: goes on the left. Credits: goes on the right. In accounting class, we use the “T account” as a learning aid. Title of the Account Example of a T Account Cash (an asset) 1000 500 2000 500 1000 300 4000 1300 Balance 2700 Debit Side Credit Side decreases increases Footings (optional)
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Here the cash account has a debit balance of $2700. We never have negative balances. The balance is always a positive number, is may be on the debit side, it may be on the credit side. Let’s look at the accounting equation again. A debit to cash must mean there is a credit to some other account. Example: I borrow $500 from the bank. I debit (increase) cash. I credit bank loan payable, a liability. I increased my liability. Thus, a credit to liabilities is an increase. Assets Liabilities Stockholder’s Equity Debit Credit Debit Credit Debit Credit for for for for for for increases decreases decreases increases decreases increases Often, we keep track of our accounts using two separate T-accounts, but we want to combine
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ORIE 3150 class 3 - ORIE 3150 September 3, 2009 Textbook...

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