Discussion 1, Debits and Credits, Discussion 2 , Accural-based Financial Statemets - Essay Example

DQ1 Maria Alvarez is a first year accounting and the assumptions she made that debits are good and credits are bad are completely incorrect.I do not know why she thought this way. In accounting there are different types of accounts. Some accounts have a normal balance of debit such as cash, and other accounts like liabilities have a normal balance of credit. If an account has normal debit balance a debit journal entry will increase the balance, while a credit journal entry decreases the balance.

When accounts have a normal credit balance, a debit journal entry will reduce the account. A credit journal entry will increase the balance of the account. DQ2 The main difference between a cash based accounting system and accrued based accounting system is that the cash based system recognizes income when cash is received, while an accrued based system recognizes income when goods and services are shipped or when services are rendered. In an accrued based the income that is not collected at the point of sale becomes an account receivable.

I would recommend the use of a cash based system for small businesses such as a hot dog vendor. The hot dog vendor is dependent on his weekly income to keep the business going. Big corporations are better suited for the use of accrued based accounting. In the service industry it is not uncommon to invoice bills payable net 30 or net 60. The account receivable and account payable ledgers are very important for companies and they can only be created through the use of accrued based accounting.