Understanding Journal Entries in Accounting

Ava, Aiden, and Anika are playing a financial detective game! They’re reviewing their company’s records to spot which item is an asset in accounting. Can you help them figure it out?

• Accounts Payable

• Cash

• Owner’s Capital

• Sales Revenue

Answer explanation

In accounting, an asset is a resource owned by a company. Cash is considered an asset because it is a liquid resource that can be used for transactions. The other options represent liabilities or equity, not assets.

Emma, Noah, and Abigail are teaming up to start a small business! As they dive into their new adventure, they want to make sure their company’s finances are always in tip-top shape. They discover that the accounting equation is the secret formula to keeping their books balanced. Which accounting equation should this dynamic trio use?

• Assets = Liabilities + Expenses

• Assets = Liabilities + Owner’s Equity

• Assets = Owner’s Equity - Liabilities

• Assets = Revenues - Expenses

Answer explanation

The correct accounting equation is Assets = Liabilities + Owner’s Equity. This equation shows that a company's assets are financed by liabilities and the owner's equity, ensuring the books are balanced.

Liam and Mia are running their own office supply store. One day, Liam buys office supplies for the business and pays with cash. In double-entry accounting, how does this transaction affect their accounts?

• Only one account

• At least two accounts

• Only asset accounts

• Only liability accounts

Answer explanation

In double-entry accounting, every transaction affects at least two accounts. When Samuel buys office supplies, one account (supplies) increases while another account (cash) decreases, thus impacting at least two accounts.

Michael and Zoe are having a friendly accounting challenge in class! When Michael draws a T-account, Zoe bets she knows which side the debits go on. Can you help them settle the score? On which side does Michael record debits in his T-account?

• Left

• Right

• Top

• Bottom

Answer explanation

In a T-account, debits are recorded on the left side. This is a fundamental principle in accounting, where the left side represents increases in assets or expenses.

Nora, Rohan, and Scarlett have just started their first day as accountants for a small business. They want to make sure every financial transaction is properly documented as it happens. What is the primary purpose of the journal they use in accounting?

• To summarize account balances

• To record transactions in chronological order

• To prepare financial statements

• To calculate net income

Answer explanation

The primary purpose of the journal in accounting is to record transactions in chronological order. This ensures that all financial activities are documented as they occur, providing a clear timeline of events.

Kai, Zoe, and Arjun are helping Sophia review the balances of different accounts in their company's accounting records. They come across the following accounts: Cash, Accounts Receivable, Accounts Payable, and Equipment. As they compete to see who knows their accounting basics best, which of these accounts would they expect to normally have a credit balance?

• Cash

• Accounts Receivable

• Accounts Payable

• Equipment

Answer explanation

Accounts Payable is a liability account, which typically has a credit balance. In contrast, Cash, Accounts Receivable, and Equipment are asset accounts that usually have debit balances.

Emma and Benjamin are in charge of buying office supplies for their company, and this time they decide to purchase them on credit. Which accounts will be affected by their decision?

• Supplies and Cash

• Supplies and Accounts Payable

• Supplies and Owner’s Equity

• Supplies and Revenue

Answer explanation

When Abigail's company purchases supplies on credit, the Supplies account increases (asset) and Accounts Payable increases (liability), reflecting the obligation to pay later. Thus, the correct accounts affected are Supplies and Accounts Payable.

Luna and Anika are running a small business together. One day, Daniel walks in and pays them $1,000 in cash for services they performed. What is the correct journal entry Luna and Anika should make?

Answer explanation

The correct journal entry is to debit Cash for $1,000, reflecting the increase in cash received, and credit Service Revenue for $1,000, recognizing the income earned from services performed.

Lily and her friend Rohan are running a small business together. One day, they decide to stock up their store with new inventory. Instead of paying the supplier right away, they make a deal to pay later. Which of the following transactions would cause both an asset and a liability to increase for Lily and Rohan?

• Paying off a loan

• Purchasing equipment for cash

• Purchasing inventory on credit

• Receiving cash from a customer

Answer explanation

Purchasing inventory on credit increases assets (inventory) and liabilities (accounts payable) simultaneously, as Lily agrees to pay the supplier later.

Elijah and Zoe are helping David run his small business. One day, they watch as David pays the monthly rent for his office space in cash. What happens to the accounts after this transaction?

• Increase Rent Expense, Increase Cash

• Increase Rent Expense, Decrease Cash

• Decrease Rent Expense, Increase Cash

• Decrease Rent Expense, Decrease Cash

Answer explanation

When David pays rent in cash, it increases the Rent Expense account, reflecting the cost incurred. Simultaneously, cash decreases as it is paid out, leading to the correct choice: Increase Rent Expense, Decrease Cash.