Question 1

Liability accounts should only be debited and never credited.

Accepted Answer

Liability accounts can be credited when there is an increase in the liability, such as when a loan is taken or when a liability is accrued.

Question 2

Every business transaction is recorded by a debit to a balance sheet account and a credit to an income statement account.

Accepted Answer

Every business transaction is recorded by a debit to one account and an equal credit to another account. It is not always a balance sheet account and an income statement account. It could be any two accounts based on the nature of the transaction.

Question 3

When making a general journal entry, there can only be one debit and one credit.

Accepted Answer

A general journal entry can have multiple debits and credits, as long as the total debits equal the total credits. This is known as double-entry accounting.

Question 4

When a company uses the double-entry method, the total dollar amount of debits recorded must equal the total dollar amount of credits recorded, but the number of debit and credit entries may differ.

Accepted Answer

This is a fundamental rule of the double-entry method of accounting. The total dollar amount of debits must always equal the total dollar amount of credits, but the number of debit and credit entries may vary.

Question 5

The left-hand side of an account is used for recording debits and the right-hand side for recording credits.

Accepted Answer

This is a basic principle of accounting known as the double-entry system. Debits are used to record increases in assets and expenses, while credits are used to record increases in liabilities, equity, and revenue.

Question 6

Dividends are an expense of a corporation and reduce both total assets and liabilities.

Accepted Answer

Dividends are a distribution of profits to shareholders and do not affect total assets and liabilities. Instead, they decrease the retained earnings account on the balance sheet.

Question 7

A business that is profitable and liquid will have more accounts with credit balances than with debit balances.

Accepted Answer

A business that is profitable and liquid will have more accounts with debit balances than with credit balances. A credit balance indicates that the business owes money, while a debit balance indicates that the business is owed money. Therefore, a business with a higher number of debit balances is more profitable and has more liquid assets.

Question 8

Dividends increase owners' equity and therefore should be added to retained earnings.

Accepted Answer

The answer of Dividends increase owners' equity and therefore should...

Question 9

Accounts are usually arranged in the ledger in financial statement order, that is, assets first, followed by liabilities, owners' equity, expenses, and revenues.

Accepted Answer

The answer of Accounts are usually arranged in the ledger...

Question 10

Earning revenue increases owners' equity and expenses reduce owners' equity, therefore, revenues are recorded with debit entries and expenses are recorded with credit entries.

Accepted Answer

Revenues are recorded with credit entries and expenses are recorded with debit entries.

Question 11

In a computerized accounting system, posting may be done automatically but journalizing must be done by someone with an understanding of recording transactions.

Accepted Answer

In a computerized accounting system, transactions may be recorded automatically and posted to the proper accounts, but someone with an understanding of accounting principles must still be responsible for journalizing the transactions in the first place.

Question 12

Every transaction affects equal numbers of ledger accounts and is recorded by equal dollar amounts of debits and credits.

Accepted Answer

The answer of Every transaction affects equal numbers of ledger...

Question 13

If ledger accounts are maintained in three-column, running balance form, the journal should be maintained in the same format.

Accepted Answer

While ledger accounts may be maintained in three-column, running balance form, the journal is typically maintained in a two-column format without running balances.

Question 14

If the number of debit entries in an account is greater than the number of credit entries, the account will have a debit balance.

Accepted Answer

The answer of If the number of debit entries in...

Question 15

A credit to a ledger account refers to the entry of an amount on the right side of an account.

Accepted Answer

A credit entry on an account refers to an entry made on the right-hand side of the account.

Question 16

A trial balance cannot be distributed to stockholders in lieu of a balance sheet.

Accepted Answer

A trial balance only lists the balances of all accounts in the ledger, while a balance sheet provides an overall picture of the company's financial position, including assets, liabilities, and equity. Therefore, a trial balance cannot replace a balance sheet for the purpose of communicating the company's financial status to stockholders.

Question 17

The credit side of an account is the right side, while the debit side is the left side.

Accepted Answer

This is true for traditional accounting systems where debits are recorded on the left side and credits are recorded on the right side. However, in some computerized accounting systems, the placement of debits and credits may be reversed.

Question 18

The running balance form or the T account form is typically used in the trial balance to display the accounts and their amounts.

Accepted Answer

The running balance form or T account form is typically used in the general ledger to display the activity and balances of individual accounts. The trial balance usually presents a list of accounts and their total debit and credit balances.

Question 19

The general ledger is sometimes called the book of original entry because it is the accounting record where transactions are first recorded.

Accepted Answer

The general ledger is not called the book of original entry. The book of original entry would refer to journals such as the sales journal or cash receipts journal where transactions are first recorded before being transferred to the general ledger.

Question 20

Increases in owners' equity are recorded by credits; increases in assets and in liabilities are recorded by debits.

Accepted Answer

Increases in owners' equity are recorded by credits, but increases in assets are recorded by debits and increases in liabilities are recorded by credits.

Quiz 3: The Accounting Cycle: Capturing Economic Events