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Questions and Answers
Which of the following accounts is NOT typically decreased by a debit?
Which of the following accounts is NOT typically decreased by a debit?
Which of the following pairs of accounts are BOTH increased by credits?
Which of the following pairs of accounts are BOTH increased by credits?
Which of the following accurately describes the relationship between assets and liabilities?
Which of the following accurately describes the relationship between assets and liabilities?
Which of the following represents a resource owed by the entity to an external party?
Which of the following represents a resource owed by the entity to an external party?
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Which of the following would typically be considered a debit?
Which of the following would typically be considered a debit?
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Which of these scenarios would result in a decrease in equity?
Which of these scenarios would result in a decrease in equity?
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Which of the following statements is TRUE regarding the double-entry bookkeeping system?
Which of the following statements is TRUE regarding the double-entry bookkeeping system?
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What is the primary purpose of account classification?
What is the primary purpose of account classification?
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Study Notes
Types of Accounts
- Accounts are fundamental for recording financial transactions in businesses and organizations. They summarize increases and decreases in specific items.
- Account types include assets, liabilities, equity, revenue, and expenses.
Asset Accounts
- Asset accounts represent the entity's owned resources.
- Examples: cash, accounts receivable, prepaid expenses, equipment, buildings, and land.
- Increases in asset accounts are recorded as debits.
- Decreases are recorded as credits.
Liability Accounts
- Liability accounts represent obligations owed by the entity to external parties.
- Examples: accounts payable, salaries payable, notes payable, and deferred revenue.
- Increases in liability accounts are recorded as credits.
- Decreases are recorded as debits.
Equity Accounts
- Equity accounts represent the owners' stake in the entity.
- Examples: common stock, retained earnings.
- Increases in equity accounts are recorded as credits.
- Decreases are recorded as debits.
Revenue Accounts
- Revenue accounts represent income from the entity's operations.
- Examples: sales revenue, service revenue.
- Increases in revenue accounts are recorded as credits.
- Decreases are recorded as debits (not typical).
Expense Accounts
- Expense accounts represent costs incurred in generating revenue.
- Examples: salaries expense, rent expense, utilities expense.
- Increases in expense accounts are recorded as debits.
- Decreases are recorded as credits (not typical).
Account Structure and Classification
- Accounts are categorized into subgroups for better organization and analysis (e.g., accounts receivable, accounts payable).
- Numbering systems help locate specific accounts and subgroups, managing company financial data effectively.
- Account classifications follow accounting standards/guidelines, varying by jurisdiction and organization type (e.g., GAAP in the US).
Debits and Credits
- Debits and credits record increases and decreases in accounts.
- The accounting equation (Assets = Liabilities + Equity) must balance after every transaction.
- Double-entry bookkeeping maintains this balance.
- Transactions affect at least two accounts (dual effect).
- Debit entries increase some accounts and decrease others.
- Credit entries increase some accounts and decrease others.
- Debit rules: increases assets and expenses; credit rules: decreases assets and increases liabilities and equity.
Account Balances
- An account balance is the net effect of all debits and credits in an account.
- It's the summary of increases minus decreases over a period.
- Account balances are updated regularly for accurate financial reporting.
- The beginning balance of an account is the carryover balance from the prior period.
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Description
This quiz covers the various types of accounts used in accounting, such as asset, liability, and equity accounts. You'll learn how each type of account functions, including how increases and decreases are recorded. Test your knowledge on these fundamental concepts essential for financial transactions.
