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Questions and Answers
What is the correct journal entry for Mr. X's investment of Rs. 1,00,000 in cash?
What is the correct journal entry for Mr. X's investment of Rs. 1,00,000 in cash?
- Debit Cash Account; Credit Equipment Account
- Debit Cash Account; Credit Capital Account (correct)
- Debit Equipment Account; Credit Cash Account
- Debit Capital Account; Credit Cash Account
When Mr. X bought equipment on credit for Rs. 3,000, which accounts are affected?
When Mr. X bought equipment on credit for Rs. 3,000, which accounts are affected?
- Debit A company Account; Credit Equipment Account
- Debit Equipment Account; Credit Cash Account
- Debit Equipment Account; Credit A company Account (correct)
- Debit Cash Account; Credit Equipment Account
Which of the following accounts would be included in the Equity category?
Which of the following accounts would be included in the Equity category?
- Loans
- Capital (correct)
- Salaries Payable
- Trade Payable
What must be true for every transaction recorded under the double-entry accounting system?
What must be true for every transaction recorded under the double-entry accounting system?
If Mr. X's liability to 'A' company increases after purchasing equipment, which type of account is being impacted?
If Mr. X's liability to 'A' company increases after purchasing equipment, which type of account is being impacted?
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Study Notes
Double-Entry Bookkeeping
- Every transaction is recorded twice, with equal debits and credits.
- The accounting equation must always remain balanced: Assets = Liabilities + Equity.
Accounting Equation
- Assets represent what the business owns.
- Liabilities represent what the business owes to others.
- Equity represents the owner's investment in the business.
Accounting Basics
- Debit: Increases assets and decreases liabilities and equity.
- Credit: Decreases assets and increases liabilities and equity.
Typical Accounting Accounts
Asset Accounts
- Examples include: Land, Buildings, Cash, Trade Receivables (money owed by customers).
Liability Accounts
- Examples include: Trade Payables (money owed to suppliers), Salaries Payable (money owed to employees), Loans.
Equity Accounts
- Examples include: Capital, Sales, Income Accounts, Expense Accounts.
Examples
-
Investment: When Mr. X invests Rs. 1,00,000 in the business:
- Cash (asset) increases, so it is debited.
- Capital (equity) increases, so it is credited.
-
Purchase on Credit: When equipment is bought from 'A' company on credit for Rs. 3,000:
- Equipment (asset) increases, so it is debited.
- 'A' Company (liability) increases, so it is credited.
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