Which of the following correctly identifies normal balances of accounts? a. Assets Debit Liabilities Credit Common Stock Credit Revenues Credit Expenses Credit b. Assets Debit Liabilities Credit Common Stock Credit Revenues Debit Expenses Credit c. Assets Credit Liabilities Debit Common Stock Debit Revenues Credit Expenses Debit d. Assets Debit Liabilities Credit Common Stock Credit Revenues Credit Expenses Debit

Question

Rory Tucker

Business

12 May, 16:54

Which of the following correctly identifies normal balances of accounts? a. Assets Debit Liabilities Credit Common Stock Credit Revenues Credit Expenses Credit b. Assets Debit Liabilities Credit Common Stock Credit Revenues Debit Expenses Credit c. Assets Credit Liabilities Debit Common Stock Debit Revenues Credit Expenses Debit d. Assets Debit Liabilities Credit Common Stock Credit Revenues Credit Expenses Debit

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Answers (1)

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Ruth Archer · Answer 1

Option D is correct because Assets, Expenses and Dividends are Debit in nature and on the other hand, Ordinary Stock, Liabilities, Equity and Revenue are Credit in nature.

Explanation:

This can be explained by the following equation:

Assets = Equity + Liability

As we know that retained earnings are part of the company and left after the payment of Dividends and drawings

Assets = (Ordinary Stock + (Revenue - Expense - Dividend)) + Liability

Assets = Ordinary Stock + Revenue - Expense - Dividend + Liability

Assets + Expense + Dividend = Ordinary Stock + Revenue + Liability

Now the items on the left side of the equation are debit in nature and items on the right side are credit on nature. Remember that credit and debits on the trial balance are always equal. This equation is the reason why the debit and credit are equal in amount.