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    Normal balances in accounts and effects to the balance sheet

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    A debit is not the normal balance for which account listed below?
    a. Dividends.
    b. Cash.
    c. Accounts Receivable.
    d. Service Fees Earned.

    An awareness of the normal balances of accounts would help you spot which of the following as an error in recording?
    a. A debit balance in the Dividends account.
    b. A credit balance in an expense account.
    c. A credit balance in a liabilities account.
    d. A credit balance in a revenue account.

    A law firm received $2,000 cash for legal services to be rendered in the future. The full amount was credited to the liability account Unearned Service Revenue. If the legal services have been rendered at the end of the accounting period and no adjusting entry is made, this would cause
    a. expenses to be overstated.
    b. net income to be overstated.
    c. liabilities to be understated.
    d. revenues to be understated.

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    Solution Preview

    Review the accounting equation:
    Assets = liabilities + equity
    Assets are normally debits; liabilities and equity are normally credits
    Within equity, revenue increases equity and expenses decrease equity

    Cash and accounts receivable are debits because they are assets.
    Dividends are a ...

    Solution Summary

    The 186 word response answers questions about normal balances in accounts and effects to the balance sheet. The accounting equation is reviewed as it applies to the questions. Unearned service revenue of a law firm can result of over/understatement of categories of accounts.