CHAPTER XI
DEBIT AND CREDIT AS APPLIED TO
ASSET AND LIABILITY ACCOUNTS
Student’s Use of Working Rules.—In order to indicate the more usual types of transactions which affect the asset, liability, and proprietorship accounts, a set-up of the various groups of accounts will be given, under which will be shown transactions recorded as debits and those recorded as credits. Accounts will be shown in the order in which they appear in the balance sheet. The accounts under each group will, of course, bear their own individual titles and not the title of the group. Only such entries as are more frequently met with will be given. Since in the group accounts given as guides only those entries appear which affect these group accounts, it is deemed impracticable to attempt to show the contra, or other side of each entry arising out of the transactions. However, the student should always supply mentally the contra of each entry shown in the group reference account. For the sake of clarity, the personal pronouns “we” and “us” will be used instead of the impersonal name.
Accounts with Cash and Notes Receivable.—Entries to the Cash and Notes Receivable accounts are comparatively simple and are shown in the following schedule:
| (Name of Account) | |
| Debit: | Credit: |
| (1) For all receipts or incoming items. | (a) For all disbursements or outgoing items. |
Transactions with cash are self-explanatory.
The accounts representing transactions with notes require some explanation. When, in the course of business, we receive a note, Notes Receivable is debited and the person who gives it is credited, because our asset Notes Receivable is increased and the claim against the open account of the person giving the note is decreased. Similarly, when that note is disbursed by us, i.e., goes out of our possession, the asset is diminished and therefore Notes Receivable is credited.
A note receivable can be disposed of in several ways:
1. Through its release on payment by the maker,
2. Through its transfer by us to another person in settlement of a claim against us, or
3. Through its sale to the bank.