Question 1

To record the acquisition of office supplies on account, an accountant would credit Office Supplies.

Accepted Answer

This is false. The acquisition of office supplies would include a debit to office supplies, an asset account.

Question 2

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

Accepted Answer

This is false. An asset is increased in an asset source transaction, so the asset account is debited and the liability or equity is credited.

Question 3

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

Accepted Answer

This is true. It is easier to end a fiscal year in a period of low activity. For many companies, this is in January or February.

Question 4

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

Accepted Answer

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

Question 5

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

Accepted Answer

This is true. An increase to a liability account is recorded as a credit.

Question 6

Debits decrease asset accounts.

Accepted Answer

This is false. Debits increase asset accounts.

Question 7

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

Accepted Answer

This is true. Every entry must include at least one debit and at least one credit.

Question 8

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

Accepted Answer

This is false. The chart of accounts is a list of a business's accounts.

Question 9

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

Accepted Answer

This is true. Decreases to retained earnings are recorded as debits because equity is being decreased.

Question 10

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

Accepted Answer

This is false. The credit should be to Unearned Revenue, a liability.

Question 11

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

Accepted Answer

This is false. A fiscal year can be a calendar year, but it does not have to be.

Question 12

A list of a company's ledger accounts and their account numbers is a chart of accounts.

Accepted Answer

This is true. This is the definition of a chart of accounts.

Question 13

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

Accepted Answer

This is false. The general journal provides a chronological record of business transactions.

Question 14

An increase to the account Dividends would be recorded as a debit; as a result, the account Dividends normally has a debit balance.

Accepted Answer

Because dividends decrease equity, increases to the dividends account are recorded as debits. The normal balance of an account is the side on which increases are recorded.

Question 15

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

Accepted Answer

This is false. Recognizing revenue includes a credit to the revenue account, not retained earnings. At closing, the balance in revenue will be transferred to retained earnings, but transactions are not recorded directly to the retained earnings account.

Question 16

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

This is true. Source documents provide the information necessary to create journal entries.

Question 17

The year for which companies prepare their financial statements is their fiscal year.

Accepted Answer

This is true. A fiscal year can be a calendar year, but it does not have to be.

Question 18

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

Accepted Answer

This is false. This describes an asset exchange, not an asset source, transaction.

Question 19

A liability account normally has a debit balance.

Accepted Answer

This is false. A liability account normally has a credit balance because increases to liabilities are recorded as credits.

Question 20

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

Accepted Answer

This is true. These are the three primary asset use transactions.

Quiz 3: The Double-Entry Accounting System