Question 1

Debits decrease asset accounts.

Accepted Answer

This is false.Debits increase asset accounts.

Question 2

The type of transaction that would be represented by a debit to one asset and a credit to another asset is an asset source transaction.

Accepted Answer

An asset source transaction involves a debit to one asset account and a credit to a liabilities or equity account, indicating an increase in the company's assets through external financing. A transaction that involves debiting one asset account and crediting another asset account would typically be an internal transfer of assets and would not fall under the category of an asset source transaction. The type of transaction that would be represented by a debit to one asset and a credit to another asset is an asset exchange transaction, not an asset source transaction. An asset source transaction involves receiving cash or other assets from an external source, such as a loan or investment.

Question 3

The three primary asset use transactions are incurring expenses, accruing liabilities, and paying dividends.

Accepted Answer

The three primary asset use transactions are incurring expenses, acquiring assets, and retiring liabilities. Paying dividends is not an asset use transaction but a distribution of profits to shareholders. The three primary asset use transactions are incurring expenses, acquiring assets, and retiring assets. Paying dividends is a financing activity, not an asset use transaction.

Question 4

The balance in Retained Earnings is decreased by debiting the account.

Accepted Answer

Retained Earnings is a stockholders' equity account and is decreased by debiting it. Retained Earnings is an equity account and is decreased by debiting it.

Question 5

The left side of a T-account is the debit side.

Accepted Answer

The left side of a T-account is always the debit side, while the right side is the credit side. The left side of a T-account is always considered the debit side, while the right side is considered the credit side.

Question 6

The Dividends account normally has a credit balance.

Accepted Answer

This is false.Because dividends decrease stockholders' equity (retained earnings),increases to the Dividends account are recorded as debits,not credits.The normal balance of an account is the side on which increases are recorded.

Question 7

A company's general ledger provides a chronological record of its business transactions.

Accepted Answer

A general ledger provides a record of a company's financial transactions by account. It is organized in a chart of accounts, rather than chronologically. A general ledger provides a summary of a company's business transactions, not a chronological record. The journal is the accounting record that provides a chronological account of transactions.

Question 8

When a company receives cash in advance from a customer, it should debit Cash and credit Accounts Receivable.

Accepted Answer

When a company receives cash in advance from a customer, it should debit Cash and credit Unearned Revenue. This is because the company has not yet earned the revenue and is liable to provide goods or services in the future. As the company fulfills its obligation, Unearned Revenue will decrease and Revenue will increase. When a company receives cash in advance from a customer, it should debit Cash and credit Unearned Revenue (a liability account), not Accounts Receivable.

Question 9

The T-account format is also called the chart of accounts.

Accepted Answer

The T-account format is a way of presenting ledger accounts, while the chart of accounts is a list of all the accounts used by an organization. They are related concepts, but not interchangeable terms. The T-account format is a way of presenting accounts in a visual format with debits on the left and credits on the right. The chart of accounts, on the other hand, is a list of all accounts used by a company or organization, which provides a framework for organizing financial transactions. While there may be some similarities between the two, they are distinct concepts in accounting.

Question 10

The entry to record revenue earned on account includes a debit to accounts receivable and a credit to revenue.

Accepted Answer

When revenue is earned on account, it means that a customer has received goods or services but has not yet paid for them. Therefore, we record the amount of revenue earned as a credit to the revenue account and increase the amount owed by the customer by debiting the accounts receivable account. When revenue is earned on account, it means that the customer hasn't paid yet, so the revenue is recorded as accounts receivable (an asset), which is debited. The other side of the entry is a credit to revenue (an equity account) to recognize the earnings.

Question 11

The general journal is a list of a business's accounts and their account numbers.

Accepted Answer

The general journal is a chronological record of all financial transactions of a business. It includes the date, accounts affected, and the amounts of debit and credit entries. The account numbers are not typically included in the general journal. The general journal is a chronological record of all transactions that occur within a business, typically including the date of the transaction, the accounts impacted, and the amount of the transaction. It does not necessarily include a list of all the business's accounts and their account numbers.

Question 12

A liability account normally has a credit balance.

Accepted Answer

A liability represents an obligation or debt that the company owes to another party, therefore increases in liabilities are recorded as credits and decreases are recorded as debits. This is because liabilities represent amounts owed to others, and so they are recorded as credits in accounting.

Question 13

Source documents provide information that serves as the basis for entries into the accounting system. Examples of source documents include invoices and deposit tickets.

Accepted Answer

Source documents are indeed used as the basis for entering transactions into the accounting system. Examples of source documents include invoices, receipts, purchase orders, and bank statements. Source documents are the original documents that provide evidence of a transaction and are used as a basis for recording transactions in the accounting system. Examples of source documents include invoices, receipts, checks, deposit tickets, and purchase orders.

Question 14

At the end of its fiscal year, a company must adjust its accounting records for unrecorded accruals and deferrals before it can prepare financial statements.

Accepted Answer

Accruals and deferrals are necessary to ensure that revenues and expenses are recorded in the correct accounting period. Therefore, adjustments must be made at the end of the fiscal year to account for any items that were not previously recorded. These adjustments are reflected in the financial statements. This is true. Adjusting entries are necessary to record revenues and expenses in the proper accounting period and ensure that financial statements reflect a company's true financial position and performance.

Question 15

Generally accepted accounting principles require that a business's fiscal year must end on December 31.

Accepted Answer

Generally accepted accounting principles do not require that a business's fiscal year end on December 31. The fiscal year can end on any day chosen by the business as long as it is consistent from year to year. While December 31 is a common fiscal year end, it is not required by generally accepted accounting principles. A business can choose any fiscal year end that is practical and useful for financial reporting purposes.

Question 16

An increase to a liability account is recorded with a debit entry.

Accepted Answer

An increase to a liability account is recorded with a credit entry, not a debit entry. An increase to a liability account is recorded with a credit entry.

Question 17

Many companies choose to end their fiscal years during a part of the year when they expect low activity.

Accepted Answer

This allows for easier accounting and financial reporting, as well as potentially reducing any tax liabilities. This is true as it allows companies to focus on financial reporting and analysis without being distracted by high levels of activity or transactions. It also allows for easier comparison of financial performance year-over-year.

Question 18

To record an asset source transaction, an asset account would be debited and a liability or stockholders' equityaccount credited.

Accepted Answer

This is known as double-entry accounting, where every transaction must have at least one debit and one credit entry in different accounts. When recording an asset source transaction, the asset account will be debited and a liability or stockholders' equity account will be credited.

Question 19

To record the purchase of supplies on account, an accountant would credit Supplies.

Accepted Answer

To record the purchase of supplies on account, an accountant would debit Supplies and credit Accounts Payable.

Question 20

Double entry accounting requires that every entry must include at least one debit and at least one credit.

Accepted Answer

This is the fundamental rule of double entry accounting. Each transaction must have a debit and a corresponding credit entry. The total debit amount should always equal the total credit amount in a transaction or an account. Double entry accounting is based on the principle of duality which means that every financial transaction affects at least two accounts and there must be a corresponding debit and credit for each transaction to ensure the accounting equation (Assets = Liabilities + Equity) remains in balance. Therefore, every entry must include at least one debit and at least one credit.

Quiz 13: The Double-Entry Accounting System