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Week 2 Forum
Week 2 topic - Debits vs. Credits and what happens to an account when entries are changed.
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This is the discussion forum topic for Week 2:
Roy Akins was the accounting manager at Zelco, a tire manufacturer, and he played golf with Hugh
Stallings, the CEO, who was something of a celebrity in the community. The CEO stood to earn a
substantial bonus if Zelco increased net income by year-end. Roy was eager to get into Hugh's elite social
circle; he boasted to Hugh that he knew some accounting tricks that could increase company income by
simply revising a few journal entries for rental payments on storage units. At the end of the year, Roy
changed the debits from "rent expense" to "prepaid rent" on several entries. Later, Hugh got his bonus,
and the deviations were never discovered.
Requirements
How did the change in the journal entries affect the net income of the company at year-end?
Who gained and who lost as a result of these actions?

Sagot :

You could struggle as a business owner to know when to use a debit and when to utilize a debits and credits in accounting. Even so, you could be unsure of their relevance.

You can check that you're following the accounting equation by using debits and credits. The accounting equation is:

Assets = Liabilities + Equity

Any transaction that is recorded includes at least two accounts in double-entry accounting, with one account being debits and credits and the other being credited. To keep your accounts in balance, your debits and credits must always equal one another. Debits are always entered on the left side of the entry, while credits are always entered on the right.

Debits and credits are the foundation of precise accounting for a business, whether you're operating a sole proprietorship or a publicly traded enterprise. In contrast to credits, debits result in a gain in asset or expense accounts and a drop in liability accounts. Recording these transactions can get more difficult as your business expands, but it's important to get it right to keep your books balanced and monitor your organization's progress.

The double-entry accounting method is utilized by the majority of organizations, including small firms and sole proprietorships. This is because tracking debits and credits every business transaction in at least two accounts enables a more dynamic financial picture.

Learn more about debits and credits here

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