account balances and terminology. pacific truckings
DESCRIPTION
Calculating the Balance of an Account 1. You need to know if the account is a Debit or a Credit account. -If debits increase the account, then credits decrease it. -If credits increase the account, the debits decrease it.TRANSCRIPT
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Account Balances and Terminology
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Pacific Truckings
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Calculating the Balance of an Account
• 1. You need to know if the account is a Debit or a Credit account.
-If debits increase the account, then credits decrease it.-If credits increase the account, the debits decrease it.
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Calculating the Balance of an Account
• Step 1: Add the two sides separately. Write the subtotals very small, underneath the last items. These are called “pin totals” or “pencil footings.”
• Step 2: Figure out what needs to be added or subtracted. (Smaller number from the larger number.
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Exceptional Account Balances
• What happens if a debit account ends up with a credit balance?• We have an “Exceptional balance.”• Businesses overpaying?• Customer with no account balance returns an item for credit.• A purchaser returns goods for credit to a supplier with whom there
is no account balance.
• Overdraft
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Interpreting the Balance of an Account
• We have to constantly refer to whether accounts are debit or credit balances.-Cash is an asset because it has a debit balance.-Van Loon A/R is an asset because it has a debit balance.-Dini Bros. A/P is a liability because it has a credit balance and is not the capital account.
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Bank Account
• Why do we use bank accounts?
-Faster-Convenient-Safe
• Businesses do not keep “cash” available anymore.• From now on we will use “BANK” instead of the “cash
account.”
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Bank Account
• When an item is “bought for cash” that means it is paid for at the time. This can also mean “cheques” even though it is not immediately paid for.
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Buying and Selling on Credit
• Businesses have to have good reputations to do this. It means they can pay within 30 days (usually). Why do we do this?
• Companies are able to inspect the material and fully pay for it if they accept it..
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“On Account”• There are four types of payments “on account:”
• 1. Purchase on Account: Not paid for at time of purchase.• 2. Sale on Account: Item sold on credit, no cash received.• 3. Payment on Account: Money paid out to a creditor to decrease
amount owed.• 4. Receipt on Account: Money received from a debtor to reduce the
amount owed.
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