Analyzing Transactions

Credit means:

• increase

• decrease

• left

• right

Answer explanation

In accounting, credit typically refers to an increase in assets or income, which is represented on the right side of a ledger. Therefore, the correct answer is 'right'.

Debit means

• increase

• decrease

• left

• right

Answer explanation

In accounting, a debit is recorded on the left side of a ledger. It typically signifies an increase in assets or expenses, making 'left' the correct choice.

Asset accounts decrease on the credit side.

• TRUE

• FALSE

Answer explanation

Asset accounts indeed decrease on the credit side, as credits reduce asset balances. Therefore, the statement is TRUE.

Mikaela Mundt invested $2,000.00 of her own money in the business. Receipt No. 1. The two accounts affected are (a)   .

• Cash and Insurance
• Cash and Prepaid Insurance
• Cash and Mikaela Mundt, Investment
• Cash and Mikaela Mundt, Capital

Answer explanation

Mikaela's investment increases the Cash account and represents her ownership in the business, recorded as Capital. Thus, the correct accounts affected are Cash and Mikaela Mundt, Capital.

Used business cash to purchase supplies costing $216.00. Wrote Check No. 1. This transaction increases and decreases assets.

• False

• True

Answer explanation

The transaction increases supplies (an asset) by $216 and decreases cash (another asset) by the same amount. Therefore, it results in both an increase and a decrease in assets, making the statement true.

The two accounts involved when you receive cash from the owner as an investment are (a)   and (b)   .

• cash and capital
• cash and investment
• cash and owner's equity
• cash and supplies

Answer explanation

When cash is received from the owner as an investment, it increases the cash account and also increases the capital account, reflecting the owner's equity in the business. Thus, the correct accounts are cash and capital.

Buying supplies on account creates a (a)   .

• False
• True

Answer explanation

Buying supplies on account creates a liability, not a receivable. A receivable arises when a sale is made on credit, not when supplies are purchased.

Match each type of account with its normal balance side.

• Liability account

• debit

• Asset account

• credit

• General term for the side that increases an account

• normal balance

Answer explanation

The normal balance side of an asset account is debit. This means that increases in assets are recorded on the debit side, while decreases are recorded on the credit side.

Paying cash for insurance (a)   increases and decreases an asset.

• False
• True

Answer explanation

Paying cash for insurance decreases cash (an asset) and increases prepaid insurance (another asset). Thus, it affects assets, making the statement true.

Each asset account normally has a debit balance.

• true

• false

Answer explanation

Each asset account, such as cash or inventory, typically has a debit balance, reflecting ownership and value. Therefore, the statement is true.