ORIE 3150 class 3

# 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
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