Understanding Double Entry Bookkeeping

What is the fundamental accounting equation?

• Assets = Liabilities + Equity

• Assets = Liabilities - Equity

• Assets = Equity - Liabilities

• Assets = Liabilities x Equity

In double-entry bookkeeping, which of the following is true about debits and credits?

• Debits increase liabilities and credits decrease assets

• Debits decrease assets and credits increase liabilities

• Debits increase assets and credits increase liabilities

• Debits increase liabilities and credits increase assets

Which side of a T-account is typically used for debits?

• Right

• Left

• Top

• Bottom

If a company purchases equipment for £5,000 on credit, how would this transaction affect the accounting equation?

• Increase assets and decrease equity

• Increase assets and increase liabilities

• Decrease assets and increase liabilities

• Increase liabilities and decrease equity

Which of the following transactions would result in a credit to the cash account?

• Receiving cash from a customer

• Paying a supplier

• Borrowing money from a bank

• Issuing shares

What is the effect of a debit entry on the equity account?

• Increases equity

• Decreases equity

• No effect on equity

• Converts equity to liability

If a business owner invests £10,000 into their business, how is this recorded in the accounts?

• Debit cash, credit equity

• Debit equity, credit cash

• Debit liabilities, credit cash

• Debit cash, credit liabilities

Which of the following is an example of a liability account?

• Accounts Receivable

• Inventory

• Accounts Payable

• Retained Earnings

What happens to the accounting equation when a company pays off a £2,000 loan?

• Assets decrease, liabilities decrease

• Assets increase, liabilities decrease

• Assets decrease, equity increases

• Liabilities increase, equity decreases

In which scenario would a credit entry be made to the revenue account?

• When a customer returns a product

• When a sale is made on credit

• When cash is paid to a supplier

• When an asset is purchased