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Questions and Answers
What is the fundamental principle behind double-entry bookkeeping?
What is the fundamental principle behind double-entry bookkeeping?
- Each transaction has equal and opposite effects on at least two accounts. (correct)
- Every transaction affects only one account.
- Transactions are recorded solely based on cash flow.
- Total debits must always exceed total credits.
A debit entry always increases an asset account.
A debit entry always increases an asset account.
True (A)
In the double-entry system, what is the term for the method used to record transactions in the general ledger?
In the double-entry system, what is the term for the method used to record transactions in the general ledger?
double entry
In double-entry bookkeeping, a credit entry will __________ an asset.
In double-entry bookkeeping, a credit entry will __________ an asset.
Match the following effects on accounts with the correct type of entry.
Match the following effects on accounts with the correct type of entry.
Which of the following best describes the 'dual effect' or 'duality concept' in accounting?
Which of the following best describes the 'dual effect' or 'duality concept' in accounting?
According to fundamental accounting principles, the total value of debit entries in the general ledger must always equal the total value of credit entries.
According to fundamental accounting principles, the total value of debit entries in the general ledger must always equal the total value of credit entries.
In the context of double-entry accounting, what term describes ledger accounts that have debit and credit sides, enabling the recording of the two-sided nature of transactions?
In the context of double-entry accounting, what term describes ledger accounts that have debit and credit sides, enabling the recording of the two-sided nature of transactions?
The basic rule of double entry requires that every transaction gives rise to two accounting entries: one __________ and one __________.
The basic rule of double entry requires that every transaction gives rise to two accounting entries: one __________ and one __________.
Match each transaction with its effect on the accounting equation.
Match each transaction with its effect on the accounting equation.
Which type of entry decreases a liability?
Which type of entry decreases a liability?
An increase in revenue is recorded as a debit entry.
An increase in revenue is recorded as a debit entry.
What is the correct entry when a business makes a cash payment, and how does it affect the cash account?
What is the correct entry when a business makes a cash payment, and how does it affect the cash account?
In a 'T' account, increases in assets are recorded on the __________ side.
In a 'T' account, increases in assets are recorded on the __________ side.
Match the following transactions with their effect on the cash account.
Match the following transactions with their effect on the cash account.
If a retailer receives cash from a sale, how is this recorded in the accounting system?
If a retailer receives cash from a sale, how is this recorded in the accounting system?
In the general ledger, if the debit side of an account is $5,000 and the credit side is $3,000, the account has a credit balance of $2,000.
In the general ledger, if the debit side of an account is $5,000 and the credit side is $3,000, the account has a credit balance of $2,000.
According to the rules of double entry, how should you record the purchase of equipment with cash?
According to the rules of double entry, how should you record the purchase of equipment with cash?
When a business pays a rent bill totaling $150, the __________ account is debited, and the cash account is __________.
When a business pays a rent bill totaling $150, the __________ account is debited, and the cash account is __________.
Match the transactions with the correct accounts for debit and credit entries.
Match the transactions with the correct accounts for debit and credit entries.
What type of account is used when goods or services are acquired on credit?
What type of account is used when goods or services are acquired on credit?
When a business sells goods on credit, the debit side of the entry is to the cash at bank account.
When a business sells goods on credit, the debit side of the entry is to the cash at bank account.
In the case of a credit purchase, where is the credit entry made?
In the case of a credit purchase, where is the credit entry made?
When a sale is made to a credit customer, the debit side of the entry is posted to a __________ account.
When a sale is made to a credit customer, the debit side of the entry is posted to a __________ account.
Match the type of credit transaction with the appropriate account.
Match the type of credit transaction with the appropriate account.
If a business pays a supplier $100 one month after acquiring goods on credit, what is the correct entry made in the Cash at Bank account?
If a business pays a supplier $100 one month after acquiring goods on credit, what is the correct entry made in the Cash at Bank account?
When a customer settles a debt, the amount they owe is increased in the trade receivables control account.
When a customer settles a debt, the amount they owe is increased in the trade receivables control account.
If a business pays the amount it owes a supplier one month after acquiring goods on credit, what entries are made in the cash at bank and the trade payables control accounts?
If a business pays the amount it owes a supplier one month after acquiring goods on credit, what entries are made in the cash at bank and the trade payables control accounts?
When a customer pays their debt, cash is __________, and the amount owed by the trade receivable is __________.
When a customer pays their debt, cash is __________, and the amount owed by the trade receivable is __________.
Match the actions related to credit transactions with how they resolve in accounting records:
Match the actions related to credit transactions with how they resolve in accounting records:
What is the purpose of a general journal in accounting?
What is the purpose of a general journal in accounting?
The general journal is primarily used to record routine, high-volume transactions like sales and purchases.
The general journal is primarily used to record routine, high-volume transactions like sales and purchases.
What kind of transactions would be recorded in the general journal as opposed to other specific journals or ledgers?
What kind of transactions would be recorded in the general journal as opposed to other specific journals or ledgers?
The general journal includes the date, the account(s) __________, the account(s) __________, the amounts, and a narrative.
The general journal includes the date, the account(s) __________, the account(s) __________, the amounts, and a narrative.
Match where a transaction would typically be recorded.
Match where a transaction would typically be recorded.
A company purchases office supplies for cash. How does this transaction affect the accounting equation?
A company purchases office supplies for cash. How does this transaction affect the accounting equation?
A credit note received from a supplier should be recorded as a debit to accounts payable.
A credit note received from a supplier should be recorded as a debit to accounts payable.
Explain the impact on the financial statements if a company incorrectly records a cash purchase as a credit purchase.
Explain the impact on the financial statements if a company incorrectly records a cash purchase as a credit purchase.
If a company fails to record depreciation expense, assets will be __________, and equity will be __________.
If a company fails to record depreciation expense, assets will be __________, and equity will be __________.
Match the error with its effect on the trial balance.
Match the error with its effect on the trial balance.
Flashcards
Double Entry
Double Entry
Each transaction has an equal but opposite effect; every accounting event is a debit and equal credit.
Dual Effect
Dual Effect
Method used to record transactions in the general ledger, having two effects.
Debit entry will:
Debit entry will:
Increase an asset, decrease a liability, or increase an expense.
Credit entry will:
Credit entry will:
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Rules of Double Entry
Rules of Double Entry
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Asset balance
Asset balance
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Liability Balance
Liability Balance
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Capital Balance
Capital Balance
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Income Balance
Income Balance
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Expense Balance
Expense Balance
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Trade Payables
Trade Payables
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Trade Receivables
Trade Receivables
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Credit Note
Credit Note
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General Journal
General Journal
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Study Notes
- Double entry bookkeeping is based on the principle that each transaction has an equal and opposite effect
- Each accounting event gets entered into ledger accounts as both a debit and an equal, opposite credit
Debit Entry Effects:
- Increases an asset
- Decreases a liability
- Increases an expense
Credit Entry Effects
- Decreases an asset
- Increases a liability
- Increases income
Dual Effect
- Double entry requires every transaction to have two effects
- Purchasing a $1000 car with cash results in owning a $1000 car and having $1000 less cash
- Getting a bank loan to buy a $1000 car results in owning a $1000 car and owing the bank $1000
- Paying $50 for an exhaust replacement leads to $50 less cash and a $50 repair expense
- Ledger accounts allow recording both sides of a transaction via debits and credits
Double Entry Rules
- Every transaction results in two accounting entries: one debit and one credit
- The total value of debits equals the total value of credits in the general ledger
Debit Entry
- Increases in expenses (e.g., stationery purchase) or assets (e.g., office furniture purchase) are debit entries
Credit Entry
- Increases in revenue (e.g., a sale) or liabilities (e.g., buying goods on credit) are credit entries
- Decreases in assets (e.g., cash payment) are credit entries
- Decreases in liabilities (e.g., paying a trade payable) are debit entries
'T' Accounts:
- Assets increase with debit entries and decrease with credit entries
- Liabilities decrease with debit entries and increase with credit entries
- Capital decreases with debit entries and increases with credit entries
- Income decreases with debit entries and increases with credit entries
- Expenses increase with debit entries and decrease with credit entries
- Profit retained in the business increases capital
- Income increases profit, whereas expenses decrease profit
Debits and Credits Example (Bookstore Transactions):
- Purchase of books on credit: trade payables increase (credit), and purchases expense increases (debit)
- Purchase of cash register: cash register increases (debit), and cash at bank decreases (credit)
- Payment received from a credit customer: trade receivables decrease (credit), and cash at bank increases (debit)
- Purchase of van: van increases (debit), and cash at bank decreases (credit)
Cash Account Rules
- Cash payments are credit entries, decreasing the asset; debit entry goes to the expense or asset account
- Cash receipts are debit entries, increasing the asset; credit entry goes to the sales account
Double Entry Definition
- It is how businesses record financial transactions
- An account is kept for each asset, liability, income, expense, and capital
- Every transaction is recorded twice, ensuring every debit is balanced by a credit
Cash Transaction Example:
- Cash sale of $250: debit cash at bank, credit sales account
- Rent payment of $150: credit cash at bank, debit rent account
- Buying goods for $100 cash: credit cash at bank, debit purchases account
- Buying shelves for $200 cash: credit cash at bank, debit shelves account
Credit Transactions
- Many transactions aren't settled immediately with cash/check
- Businesses buy assets/goods on credit, which creates trade payables (amounts owed to suppliers)
- Businesses grant credit to customers, creating trade receivables (amounts owed by customers)
- Credit transactions don't have an immediate impact on the cash at bank ledger account and instead the details go to Trade Receivables and Trade Payables
Trade Payables
- When acquiring services/goods on credit, credit goes to a 'trade payables control account'
- The debit goes to the appropriate expense/asset account
- The trade payables control account records all trade payable transactions
Trade Receivables
- Similarly, a sale to a credit customer is recorded on the debit side in a 'trade receivables control account'
- The credit goes to the sales account
Credit Transactions
- Sale of goods on credit to Mr. A for $2000: debit Trade Receivables Control Account, credit Sales Account
- Purchase of goods on credit from B Co. for $100: debit Purchases Account, credit Trade Payables Control Account
Cash Paid to Suppliers/Customers
- Paying $100 to B Co. one month after acquiring goods on credit credit cash at bank and debit the trade payables control account
- The entries in the trade payables control account cancel out, indicating no money is ultimately owed to suppliers
Customer Debt Settlement
- When Mr. A pays his $2000 debt, debit cash at bank and credit the trade receivables control account
- Entries in the trade receivables control account cancel each other out
- The cash at bank account and sales account reflect the sale having been for cash
The General Journal
- It records transactions not part of the main business activities
- It records individual double entries, corrections, and year-end balance adjustments
- It records unusual/non-routine movement between accounts
- It includes the date, accounts debited/credited, involved amounts, and narrative
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