2. Rules of debit and credit and normal balances.

Double Entry Accounting System

Definition: A system relying on the accounting equation, ensuring every business transaction is recorded in at least two accounts.
Key Features:
- Total debits for each transaction equal total credits.

Balance Sheet Accounts:
- Assets:
  - Debits increase the account.
  - Credits decrease the account.
- Liabilities and Stockholders' Equity:
  - Credits increase the account.
  - Debits decrease the account.
Income Statement Accounts:
- Revenues:
  - Increase equity, therefore:
    - Credits increase revenue accounts.
    - Debits decrease revenue accounts.
- Expenses:
  - Decrease equity, therefore:
    - Debits increase expense accounts.
    - Credits decrease expense accounts.

Dividends:
- Decrease equity, hence:
  - Debits increase the dividends account.
  - Credits decrease the dividends account.

Types of Accounts:
- Debit Entries Only:
  - Expenses
  - Assets
  - Dividends
- Credit Entries Only:
  - Liabilities
  - Revenue Accounts
- Both Debit and Credit Entries:
  - Accounts Payable
  - Cash
  - Supplies

Accounts Payable:
- Type: Liability account.
- Normal Balance: Credit.
- Example: Increases when inventory is purchased on credit.
Cash:
- Type: Asset account.
- Normal Balance: Debit.
- Example: Increases when cash is received for sales; decreases when cash is paid for purchases.
Fees Earned:
- Type: Revenue account.
- Normal Balance: Credit.
- Reflects various forms of revenues: sales, interest income.
Supplies:
- Type: Asset account.
- Normal Balance: Debit.
- Increased when purchased, decreased when used.
Utilities:
- Type: Expense account.
- Increases when expenses are incurred (debited).

Provides a clear overview of:
- How to record transactions across various types of accounts.
- The normal balances that should be maintained to reflect accurate financial standing.