Deck 3: Double Entry Accounting

Question 1

On 1^st of June a hotel purchased a new vacuum cleaner for $12,000. It paid $8,000 in cash and the vacuum cleaner supplier extended 30 days credit for the balance. Which of the following is the accounting entry to record the 1^st June transaction?

A) Debit cleaning equipment $12,000, credit cash $12,000.
B) Debit cleaning equipment $8,000, credit cash $8,000.
C) Debit cleaning equipment $12,000, credit cash $8,000, credit accounts receivable $4,000.
D) Debit cleaning equipment $12,000, credit cash $8,000, credit accounts payable $4,000.
E) None of the above.

Answer 1

D

Question 2

In double entry accounting:

A) With respect to balance sheet accounts: asset accounts normally have a debit balance, liability and owners' equity accounts normally have a credit balance.
B) With respect to profit and loss accounts: revenue accounts have a credit balance, expense accounts have a debit balance.
C) For every set of debit entries, there must be a set of credit entries with the same monetary value.
D) Where there is a cash inflow we debit the cash account. For a cash outflow, we credit the cash account.
E) All of the above statements are true.

Answer 2

E

Question 3

In a hotel, which of the following is not normally treated as a current asset?

A) Prepaid insurance.
B) Inventory of linen.
C) Marketable securities.
D) Beer held in bar fridge.
E) Cash at bank.

Answer 3

B

Question 4

The retained earnings account represents:

A) The undistributed profit of a business held as cash.
B) An indicator of how much cash an organisation has accumulated to pay out to owners.
C) Profit earned in the current financial year.
D) The accumulated profit of a business since it began operations minus any dividends or drawings paid out to owners.
E) None of the above.

Question 5

For the current financial year a hotel had $350,000 in its retained earnings account at the beginning of the year. During the year it earned $80,000 in profit and paid $32,000 in dividends to its owners. The balance sheet at the end of the current financial year should reflect a retained earnings balance of:

A) $430,000.
B) $318,000.
C) $398,000.
D) $48,000.
E) $80,000.

Question 6

In the current year the Budget Hotel earned $60,000 profit. Its assets increased by $120,000 and its liabilities increased by $40,000. What was the value of the owners' capital contribution or dividend received during the year?

A) Dividend of $20,000.
B) Contribution of $20,000.
C) Dividend of $10,000.
D) Contribution of $10,000.
E) None of the above.

Question 7

Which of the following normally have a credit balance?

A) Assets and revenue
B) Expenses and assets
C) Prepaid expenses and revenues
D) Liabilities and owner's equity
E) None of the above.

Question 8

When a hotel pays off a bank loan, in its books it:

A) Debits expenses and credits cash
B) Debits cash and credits owner's equity
C) Debits loan payable and credits cash
D) Debits cash and credits loan payable
E) None of the above

Question 9

With respect to double entry accounting systems, which of the following statements is true?

A) When recording a transaction, at least one account is debited and at least one account is credited.
B) The accounting equation should remain intact.
C) The total of the debit balances on general ledger accounts should equal the total of the credit balances on general ledger accounts.
D) Gifts are ignored as there is no double entry.
E) Statements A, B and C are true.

Question 10

A hotel's junior accountant was recording advertising expense and made an error. He debited the sales revenue account instead of the advertising expense account. This mistake would signify:

A) Assets would be understated at the end of the period.
B) Owner's equity would be understated at the end of the period.
C) Net profit would be overstated for the period.
D) The error would not cause the period's recorded profit to be incorrect.
E) There would be an overstatement of sales revenue for the period.

Question 11

Journal entries:

A) Are presented in account number sequence.
B) Provide a chronological record of all transactions.
C) Are presented in account alphabetical sequence.
D) Use a "T-account" layout.
E) None of the above are true.

Question 12

The Smith Show Events company took up a $100,000 bank loan last month. The entry to record this transaction involves:

A) Debiting 'expenses' and crediting 'cash'
B) Debiting 'cash' and crediting 'expenses'
C) Debiting 'cash' and crediting 'loan payable'
D) Debiting 'loan payable' and crediting 'money borrowed'
E) None of the above.

Question 13

In the current year the Budget Hotel earned $100,000 profit. Its assets increased by $140,000 and its liabilities increased by $50,000. What was the value of the owners' capital contribution or dividend paid during the year?

A) $20,000 dividend paid.
B) Contribution of $20,000.
C) $10,000 dividend paid.
D) Contribution of $10,000.
E) None of the above.

Question 14

With respect to double entry accounting systems, which of the following statements is true?

A) When recording a single transaction we would only debit one account and credit one account.
B) When recording a single transaction, if an asset account is debited we would have to credit a liability account or the owners equity account.
C) In a particular accounting period, the total dollar value of the debit entries should equal the total dollar value of the credit entries.
D) A gift made to a business would not be recorded, as the double entry accounting system was not designed to record gifts.
E) None of the statements are true.

Question 15

A credit entry can have the effect of:

A) Increasing assets or increasing liabilities.
B) Decreasing assets or increasing liabilities.
C) Decreasing assets or decreasing owners equity.
D) Increasing liabilities or decreasing owners equity.
E) Increasing assets or increasing owners equity.

Question 16

Which accounts normally have credit balances?

A) Assets, expenses and retained earnings.
B) Liabilities, owners equity and expenses.
C) Liabilities, owners equity, and retained earnings.
D) Revenue, assets and retained earnings.
E) Revenue, dividends, and liabilities.

Question 17

Which of the following statements about journal entries is false?

A) The general journal only refers to asset, liability and owners equity accounts.
B) The general journal provides a complete record of each transaction.
C) The general journal provides a chronological record of transactions.
D) The general journal often records the number of each account affected by transactions.
E) The general journal can assist in the location of accounting errors.

Question 18

In its most recent financial year, Gold Coast Events earned $120,000 profit. Its assets increased by $170,000 and its liabilities increased by $70,000. What was the value of the owners' capital contribution or dividend paid during the year?

A) $20,000 dividend paid.
B) Contribution of $20,000.
C) $10,000 dividend paid.
D) Contribution of $10,000.
E) None of the above.

Question 19

In the current year the Budget Hotel earned $100,000 profit. Its assets increased by $120,000 and its liabilities increased by $40,000. What was the value of the owners' contribution to capital or dividend declared and paid during the year?

A) Dividend declared and paid of $20,000.
B) Contribution of $20,000.
C) Dividend declared and paid of $10,000.
D) Contribution of $10,000.
E) None of the above.

Question 20

A revenue account:

A) Is increased by debit entries.
B) Is decreased by credit entries.
C) Normally has a debit balance.
D) Is increased by credit entries.
E) Usually has more debit entries than credit entries.

Question 21

A hotel sold four cases of wine at a conference function for $2,160 cash. The four cases cost the hotel $1,000. The set of accounting entries to record this transaction would include which of the following:

A) Credit wine revenue account $1,000; Debit cash $2,160.
B) Credit cost of goods sold $1,000; Debit cash $2,160.
C) Debit cost of goods sold $2,160; Credit cash $2,160.
D) Credit wine revenue account $2,160; Credit wine inventory $2,160.
E) Credit wine revenue account $2,160; Credit wine inventory account $1,000.

Question 22

Last year, assets of the Adventure Tours company increased by $2,800 and the company's liabilities decreased by $1,200. During this time the owners' equity balance in the company must have:

A) Increased by $1,600
B) Decreased by $1,600
C) Increased by $4,000
D) Decreased by $4,000
E) None of the above

Question 23

In a hotel, which of the following is not normally treated as a current asset?

A) Prepaid insurance.
B) Staff uniforms.
C) Money held in a bank account.
D) Beer held in bar fridge.
E) Petty cash balance held in a locked tin box and managed by the hotel's office manager.

Question 24

In the current year Ms B. Seen operated Main Events. The business earned $50,000 profit for the year. Its assets increased by $100,000 and its liabilities increased by $30,000. What was the net amount of the capital contributions or drawings taken by Ms Seen during the year?

A) Contributions of $20,000
B) Drawings of $20,000
C) Drawings of $80,000
D) Contribution of $80,000
E) None of the above

Question 25

Revenue, expense, asset, liability and owners' equity accounts normally have either a debit or a credit balance. Which of the following is incorrect?

A) Liability - credit
B) Revenue - debit
C) Asset - debit
D) Expense - debit
E) Owners' Equity - Credit

Question 26

On the 15^th February a hotel sold four cases of wine at a conference function for $2,160 cash. The four cases cost the hotel $1,000 on the 1^st February. The set of accounting entries that would be recorded when the cases were sold on the 15^th February are:

A) Debit revenue $2,160; Credit cash $2,160
Debit Inventory $1,000; Credit cost of goods sold $1,000
B) Debit Inventory $1,000; Credit cash $1,000
Debit cash $2,160; Credit revenue $2,160
C) Debit inventory $1,000; Credit cash $1,000
Debit cost of goods sold $1,000; Credit inventory $1,000
D) Debit cash $2,160; Credit revenue $2,160
Debit cost of goods sold $1,000; Credit inventory $1,000
E) Debit inventory $1,000; Credit cash $1,000
Debit cash $1,000; Credit revenue $1,000

Question 27

On 1^st of March an event operator purchased a sound system for $60,000. The event operator
Paid a deposit of $6,000 in cash and financed the balance with a bank loan. Which of the following is the accounting entry to record the 1^st March transaction?

A) Debit equipment $6,000, credit cash $6,000.
B) Debit equipment $60,000, credit cash $60,000
C) Debit equipment $60,000, credit cash $6,000, credit accounts payable $54,000.
D) Debit equipment $60,000, credit cash $6,000, credit bank loan $54,000.
E) None of the above.

Question 28

For the current financial year, a tour operating company had $270,000 in its retained earnings account at the beginning of the year. During the year it earned $60,000 in profit and paid $12,000 in dividends to its owners. The balance sheet at the end of the current financial year should reflect a retained earnings balance of:

A) $318,000.
B) $258,000.
C) $330,000.
D) $48,000.
E) $60,000.

Question 29

Last year, assets of Adventure Tours increased by $7,000 and the company's liabilities decreased by $3,000. During this time the owners' equity balance in the company must have:

A) Increased by $4,000
B) Decreased by $4,000
C) Increased by $10,000
D) Decreased by $10,000
E) None of the above