Understanding Debits and Credits

What is the fundamental principle of the double entry system?

• Every transaction affects only one account.

• Every transaction affects at least two accounts.

• Every transaction affects three accounts.

• Every transaction affects only the cash account.

In a journal entry, which account is typically debited when a company purchases equipment for cash?

• Cash account

• Equipment account

• Revenue account

• Expense account

Which of the following is true about the double entry system?

• It only records cash transactions.

• It ensures that the accounting equation remains balanced.

• It is only used for large corporations.

• It does not require a ledger.

What is the purpose of a journal entry in accounting?

• To summarise financial statements.

• To record individual transactions in chronological order.

• To prepare the balance sheet.

• To calculate net income.

If a company receives cash from a customer for a previous credit sale, which accounts are affected?

• Cash and Revenue

• Accounts Receivable and Cash

• Revenue and Accounts Payable

• Cash and Inventory

In the double entry system, what does a credit entry typically signify?

• An increase in assets

• A decrease in liabilities

• An increase in liabilities or equity

• A decrease in revenue

Which of the following transactions would result in a debit to the expense account?

• Paying off a loan

• Purchasing inventory on credit

• Paying rent for the office space

• Receiving cash from a customer

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

• It decreases the asset account.

• It increases the asset account.

• It has no effect on the asset account.

• It transfers the balance to the liability account.

Which of the following is an example of a compound journal entry?

• Recording a single transaction affecting one account

• Recording a transaction affecting two accounts

• Recording a transaction affecting more than two accounts

• Recording a transaction affecting only the cash account

When a company issues shares, which account is credited?

• Cash account

• Share Capital account

• Revenue account

• Expense account