Double Entry Basics

What is the fundamental principle of double-entry accounting?

• Debits are not necessary.

• Double credits are allowed.

• Every credit has a corresponding debit.

• Every debit has a corresponding credit.

Explain the concept of debit and credit entries in accounting.

• Debit entries increase liabilities, equity, and income, decrease assets and expenses. Credit entries decrease liabilities, equity, and income, increase assets and expenses.

• Debit entries decrease assets and expenses, increase liabilities, equity, and income. Credit entries decrease liabilities, equity, and income, increase assets and expenses.

• Debit entries decrease assets and liabilities, increase expenses, equity, and income. Credit entries decrease expenses, equity, and income, increase assets and liabilities.

• Debit entries increase assets and expenses, decrease liabilities, equity, and income. Credit entries increase liabilities, equity, and income, decrease assets and expenses.

Provide an example of a debit entry in a business transaction.

• Debit Sales Revenue $3,500

• Debit Cash $500

• Debit Accounts Payable $2,000

• Debit entry: Debit Inventory $1,000

What is the purpose of using double-entry accounting?

• To ensure accuracy in recording financial transactions and provide a clear financial picture.

• To hide financial information

• To complicate financial reporting

• To confuse financial analysts

Differentiate between debit and credit entries in terms of their effect on accounts.

• Debit entries decrease assets and expenses; credit entries decrease liabilities, equity, and income.

• Debit entries increase liabilities, equity, and income; credit entries increase assets and expenses.

• Debit entries increase liabilities, equity, and income; credit entries decrease assets and expenses.

• Debit entries increase assets and expenses; credit entries increase liabilities, equity, and income.

ABC ltd. made cash sales of $1000. What is the correct double entry?

• Dr Sales $1000

  Cr ABC $1000

• Dr ABC $1000

  Cr Sales $1000

• Dr Sales $1000

  Cr Cash $1000

• Dr Cash $1000

  Cr Sales $1000

How does a debit entry affect the total assets of a company?

• Debit entries increase total assets.

• Debit entries decrease total assets.

• Debit entries have no impact on total assets.

• Debit entries can increase or decrease total assets depending on the transaction.

How do you record the purchase of equipment for $2000 on credit?

• Debit Equipment $2000, Credit Accounts Payable $2000
• Debit Equipment $2000, Credit Cash $2000
• Debit Cash $2000, Credit Equipment $2000
• Debit Accounts Payable $2000, Credit Equipment $2000

Ali received a loan of $5000 for his tailoring business. What is the double entry for this transaction?

• Debit: Loan $5000, Credit: Cash $5000
• Debit: Ali $5000, Credit: Bank $5000
• Debit: Tailoring $5000, Credit: Business $5000
• Debit: Cash $5000, Credit: Loan $5000

How do you record the withdrawal of inventory worth $2000 from the business?

• Debit Revenue Account $2000, Credit Inventory Account $2000
• Debit Cash Account $2000, Credit Inventory Account $2000
• Debit Inventory Account $2000, Credit Expense Account $2000
• Debit Drawings $2000, Credit Inventory Account $2000