Accounting Basics

What is the fundamental principle behind debits and credits in accounting?

• Double-entry system

• Debit-only system

• Triple-entry system

• Single-entry system

In the accounting equation (Assets = Liabilities + Equity), what does 'Assets' represent?

• Amounts owed by a business

• Owner's investment in the business

• Revenue generated by the business

• Economic resources owned by a business

If an entry increases an asset account, which side (debit or credit) is it recorded on?

• left

• debit

• credit

• income

When an expense is incurred, which side (debit or credit) is it recorded on?

• assets

• debit

• credit

• liabilities

What happens to the accounting equation when a company takes out a loan?

• The accounting equation disappears.

• The accounting equation becomes unbalanced.

• The accounting equation remains balanced.

• The accounting equation doubles.

In double-entry accounting, for every debit there must be an equal and opposite what?

• revenue

• credit

• liability

• asset

What is the normal balance for an asset account?

• Income

• Debit

• Credit

• Neutral

What is the formula for the accounting equation?

• Assets = Equity - Liabilities

• Equity = Assets - Liabilities

• Assets = Liabilities + Equity

• Liabilities = Assets - Equity

What is the purpose of using debits and credits in accounting?

• Debits and credits are used to hide financial information

• Debits and credits are used to record transactions and ensure the accounting equation stays balanced.

• Debits and credits are used to complicate financial statements

• Debits and credits are used to confuse accountants

What side is an entry recorded on if it decreases an asset account?

• left

• debit

• credit

• expense