BUS 251 Chapter Notes - Chapter 3: Double-Entry Bookkeeping System, Retained Earnings, Accounting Information System
12 Apr 2016
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Recorded in such a way that it afects at least two accounts with the transacion amount recorded in each account. Revenues increase retained earnings b/c they increase net income, which increases retained earnings. Expenses decrease retained earnings b/c they decrease net income and a lower net income means lower retained earnings. Dividends declared lowers retained earnings b/c they are a distribuion of retained earnings. If we know the three points above, and that retained earnings has a credit balance, then we also know the following: Revenue accounts will normally have a credit balance b/c revenue accounts increase retained earnings and retained earnings normally has a credit balance, so it must be credited to increase it. Expense accounts will normally have a debit account b/c expense accounts decreased retained earnings and retained earnings normally has a credit balance, so it must be debited to decrease it.
