Quiz CHP 2

What does the double-entry accounting system ensure for every transaction?

• A) Only one account is affected

• B) Two accounts are always affected

• C) Multiple accounts can be affected

• D) No accounts are affected

Which document is primarily used to record a company’s sales on credit?

• A) Receipt

• B) Sales Invoice

• C) Bank statement

• D) Payroll record

If a company buys equipment on credit, what is the correct way to record this transaction in double-entry bookkeeping?

• A) Debit Equipment account; Credit Cash account

• B) Debit Cash account; Credit Equipment account

• C) Debit Equipment account; Credit Accounts Payable account

• D) Debit Accounts Receivable account; Credit Equipment account

Which of the following accounts is increased by a credit?

• A) Inventory

• B) Fixed asset

• C) Payroll Liabilities

• D) Insurance Expense

A company pays rental with cash. How should this transaction be recorded?

• A) Debit Cash; Credit Rental Expense

• B) Debit Rental Expense; Credit Cash

• C) Debit Accounts Payable; Credit Rental Expense

• D) Debit Rental Expense; Credit Accounts Receivable

Which statement best describes the rule of debits and credits in double-entry bookkeeping?

• A) Debits on the left, credits on the right

• B) Credits on the left, debits on the right

• C) Debits and credits can be interchanged

• D) There are no specific rules for debits and credits

A debit always increases an account's balance.

• True

• False

Answer explanation

Whether a debit increases or decreases an account balance depends on the type of account. It increases asset and expense accounts but decreases liability, equity, and revenue accounts.

The trial balance is used to prepare financial statements directly

• True

• False

Answer explanation

The trial balance is used to ensure that debits equal credits, indicating that the books are balanced. It is a preliminary step and helps in preparing the financial statements, but it does not directly create them.

Credits decrease liability accounts.

• True

• False

Answer explanation

Credits actually increase liability accounts. In double-entry accounting, credits increase liabilities, equity, and revenue accounts while decreasing asset and expense accounts.

Receipts are necessary documents for recording cash transactions in journals.

• True

• False

Answer explanation

Receipts provide proof of transactions involving cash and are crucial for accurately recording such entries in financial journals.