10 Questions
What are the advantages of the double-entry book-keeping system?
Scientific, systematic, complete, accuracy, profit or loss, financial position, control, decision making
Which accounts do credits increase and decrease?
Increase: liability, revenue, capital; Decrease: asset, expense
What are debit accounts and what type of balances do they usually have?
Asset and expense accounts with debit balances
How does the double-entry book-keeping system help in decision making?
Communicates financial information necessary for decision making purposes
Which accounts usually have credit balances?
Revenue (income, gains) accounts and liability accounts
What is the double entry system of accounting?
The double entry system of accounting means that every business transaction will involve two accounts or more.
How does the double entry system ensure that the accounting equation remains in balance?
Double entry system ensures that the accounting equation (assets = liabilities + owner’s equity) always remains in balance because every transaction involves at least two accounts, and the total debits must equal the total credits.
In what way do debits and credits affect different types of accounts?
Debits increase balances in asset accounts and expense accounts, and decrease balances in liability accounts, revenue accounts, and capital accounts. Credits have the opposite effect.
Provide an example of a business transaction and explain how it would be recorded using the double entry system.
For example, when a company borrows money from its bank, the company’s Cash account will increase (debit) and its liability account Loans Payable will increase (credit).
How does the double entry system facilitate error detection in accounting?
The double entry system helps in error detection because the total debits must equal the total credits for each transaction, making it easier to identify discrepancies.
Test your understanding of the double entry system in accounting, which involves every business transaction impacting two or more accounts. Explore how transactions affect different accounts and the accounting equation.
Make Your Own Quizzes and Flashcards
Convert your notes into interactive study material.
Get started for free
