Final Answer:
a. Accounts Receivable: Debit
b. Accounts Payable: Credit
c. Dividends: Debit
d. Wage Expense: Debit
e. Inventory: Debit
f. Interest Income: Credit
g. Retained Earnings: Credit
Step-by-step explanation:
Understanding the normal balances of accounts is fundamental in accounting as it helps in recording transactions accurately. The normal balance of an account is either a debit or credit based on the type of account. For assets like Accounts Receivable and Inventory, which represent what the company owns, the normal balance is on the debit side.
This is because an increase in assets is recorded as a debit. On the other hand, liabilities like Accounts Payable and equity accounts like Dividends and Retained Earnings have normal credit balances. An increase in liabilities or a distribution to shareholders is recorded as a credit.
Wage Expense is an example of an expense account, which also has a normal debit balance. Expenses are debited to increase their balances. Interest Income, being a revenue account, has a normal credit balance. Credits increase revenue accounts. Recognizing these normal balances is crucial for the accuracy of the accounting equation, where assets = liabilities + equity.
Debits and credits must align with this equation to ensure that the financial statements correctly represent the financial position and performance of the entity. Therefore, understanding the normal balances of accounts is foundational for maintaining the integrity of the accounting system and financial reporting.