Accounting: Debits and Credits

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Questions and Answers

Which of the following is the correct sequence of steps in the accounting cycle?

Journalizing transactions, preparing financial statements, posting to the ledger, preparing a trial balance.
Posting to the ledger, journalizing transactions, preparing financial statements, preparing a trial balance.
Journalizing transactions, posting to the ledger, preparing a trial balance, preparing financial statements. (correct)
Preparing a trial balance, journalizing transactions, posting to the ledger, preparing financial statements.

Closing entries are used to reset permanent accounts to zero at the end of an accounting period.

False (B)

On 6/1, a company debits Supplies Expense and credits Accounts Payable. What does this indicate?

The company returned supplies to the vendor.
The vendor paid the company cash.
The company received supplies but has not yet paid for them. (correct)
The company paid cash for supplies.

What is the purpose of a trial balance in the accounting cycle?

To verify that the total debits equal the total credits in the general ledger. Signup and view all the answers

The 6/30 transaction, debiting Accounts Payable and crediting Cash, represents the payment for the supplies that were received on 6/1.

True (A) Signup and view all the answers

The `______` is a chronological record of all the transactions of a business.

journal Signup and view all the answers

What is the balance of Accounts Payable after the 6/30 transaction, assuming it was the only Accounts Payable entry?

zero Signup and view all the answers

Match each account type to its normal balance:

Asset = Debit Liability = Credit Revenue = Credit Expense = Debit Signup and view all the answers

A debit to Supplies Expense indicates a(n) ______ in the expense account.

increase Signup and view all the answers

When a company pays its employees' salaries, which of the following is the correct journal entry?

Debit Salaries Expense, Credit Cash (C) Signup and view all the answers

If you 'cross out' (negate) the Accounts Payable entries in the journal, what is the ultimate effect on the remaining accounts?

Debit to Supplies Expense, credit to Cash (D) Signup and view all the answers

Crediting cash will increase the cash account.

False (B) Signup and view all the answers

In a journal entry, the credit account is always listed on the first line.

False (B) Signup and view all the answers

Explain the effect on the accounting equation (Assets = Liabilities + Equity) when a company purchases supplies on credit.

Assets increase (supplies) and liabilities increase (accounts payable). Signup and view all the answers

Match the effect of each transaction on the involved accounts:

Debit to Supplies Expense = Increases Supplies Expense Credit to Accounts Payable = Increases Accounts Payable Debit to Accounts Payable = Decreases Accounts Payable Credit to Cash = Decreases Cash Signup and view all the answers

Why is Accounts Payable credited when a company receives a product or service but hasn't paid for it yet?

To acknowledge increased liability. (B) Signup and view all the answers

When a business receives cash for services yet to be performed, it should Cash and Unearned Revenue.

debit, credit Signup and view all the answers

Match the following transaction with the correct debit and credit entry:

Company receives cash for future services = Debit: Cash, Credit: Unearned Revenue Company pays for office supplies with cash = Debit: Office Supplies, Credit: Cash Company performs services and immediately receives cash = Debit: Cash, Credit: Service Revenue Customer pays bill previously sent for services performed = Debit: Cash, Credit: Accounts Receivable Signup and view all the answers

A company purchases equipment with cash. What is the effect on the accounting equation?

No net effect on assets (B) Signup and view all the answers

If a company erroneously debits an expense account instead of an asset account, the trial balance will still balance.

True (A) Signup and view all the answers

On June 1, a company collected $5,000 in advance for services to be performed evenly over the next five months. What journal entry is made on June 1 to record this transaction?

Debit: Cash $5,000, Credit: Unearned Revenue $5,000 (A) Signup and view all the answers

What is maintained and updated every time an amount is posted for each account?

Running total (C) Signup and view all the answers

In a journal entry involving cash, the cash amount is always copied to the credit column in the cash ledger.

False (B) Signup and view all the answers

In the cash ledger, what indicates which of the two final columns will normally be used to maintain the account's running balance?

first entry Signup and view all the answers

Each time an amount is posted, the ______ is updated for each account.

running total Signup and view all the answers

Match the following journal entries with their corresponding effects on the cash ledger:

Debit to Cash = Increases the debit balance in the cash ledger Credit to Cash = Increases the credit balance in the cash ledger Debit to Expense, Credit to Cash = Increases the credit balance in the cash ledger Debit to Cash, Credit to Revenue = Increases the debit balance in the cash ledger Signup and view all the answers

In the ledger example provided, after Wages Expense is debited and Cash is credited for $1,000 on 6/3, and Cash already had a Debit balance of $6,000 and a Credit balance of $2,000, what is the Debit balance of Cash after this posting?

$3,000 (C) Signup and view all the answers

According to the example, cash account is credited when fees are earned.

False (B) Signup and view all the answers

If the journal shows a debit to rent expense and a credit to cash for $3,000, how would this transaction be reflected in the cash ledger?

Credit of $3,000 Signup and view all the answers

Which of the following actions would decrease a liability account?

Making a payment towards an existing loan. (D) Signup and view all the answers

A note payable is typically an informal agreement with a vendor, allowing a short period, such as thirty days, to pay for goods or services.

False (B) Signup and view all the answers

What type of business structure protects the personal assets of its owners from business debts, limiting their liability to their investment?

corporation Signup and view all the answers

The document filed with the state to form a corporation is called the articles of ___________.

incorporation Signup and view all the answers

Match the following terms with their descriptions:

Accounts Payable = Amount a business owes to vendors for purchases on credit. Note Payable = Formal loan agreement with specific repayment terms and interest. Stockholders’ Equity = Owners' stake in a business. Corporation = Business structure offering limited liability to its owners. Signup and view all the answers

When does a business credit a liability account?

When incurring a new debt. (C) Signup and view all the answers

In a sole proprietorship, the owner's personal assets are protected from business debts.

False (B) Signup and view all the answers

What is the main difference in liability between a sole proprietorship and a corporation if the business is sued?

limited vs unlimited liability Signup and view all the answers

Which account is debited when a corporation initially pays cash dividends to its stockholders?

Cash Dividends (D) Signup and view all the answers

Cash dividends are typically paid out of owner investments or common stock.

False (B) Signup and view all the answers

What two conditions must be met for a corporation to pay cash dividends?

sufficient retained earnings and sufficient cash Signup and view all the answers

The accumulated profit over time appears in the corporation's _______ account.

retained earnings Signup and view all the answers

Why is the Cash Dividends account closed to Retained Earnings at the end of the accounting period?

To ensure the Cash Dividends account starts with a zero balance in the subsequent period. (A) Signup and view all the answers

The declaration and payment of cash dividends increase the balance of the Retained Earnings account.

False (B) Signup and view all the answers

What type of account is the 'Cash Dividends' account, and what is its effect on equity?

contra equity account, decreases equity Signup and view all the answers

Match the dividend-related term with its description:

Cash Dividends = Distributions of retained earnings to stockholders Retained Earnings = Accumulated profit over time Cash Dividends Account = Contra equity account used to record dividend payments Signup and view all the answers

Flashcards

Journal

A chronological record of all transactions.

Debit

Left side of an account; increases asset, expense, and dividend accounts; decreases liability, owner's equity, and revenue accounts.

Credit

Right side of an account; increases liability, owner's equity, and revenue accounts; decreases asset, expense, and dividend accounts.