A debit posted to an asset and expenditure account

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company’s agent or employee would enter the transactions applying the debit and credit rule. A debit posted to an asset, and expenditure account will increase the balance. A debit posted to an income or liability account will reduce the balance, a credit posted to an income or liability account will increase the balance and a credit posted to an asset or expense account will decrease the balance. There are two (2) informational reports that should be reviewed at the close of the accounting period. These reports are the Balance Sheet, or the Statement of Financial Position and the Income Statement. These reports are very useful to external and internal users. The information contained in these reports enhances the understanding of the internal users such as Business Owners, Managers, Supervisors, etc. A glimpse into the operations of the business allows the internal users the ability to study past and current performance of business tendencies in order to make strategic and sound decisions to retain business profitability. The external users or interested parties that review financial statements are creditors or investors, banking institutions, taxing authorities and government agencies. For e.g. if the company wanted to apply for a loan with a financial institution, one of the reports that the bank would seek to see is the
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FUNDAMENTALS OF ACCOUNTING 4 company’s Balance Sheet and /or tax return. This report will demonstrate to the banking officer the financial health of the company. It will also help the banking system to make an informed decision to approve the loan or not.
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