Understanding Debits and Credits

Which of the following accounts normally has a credit balance?

• Wages

• Capital

• Purchases

• Rent

Which of the following accounts is usually debited when wages are paid?

• Capital

• Wages

• Sales

• Creditors

Which side of the account is increased when an asset is acquired?

• Credit side

• Debit side

• Both sides

• Neither side

Which of the following best describes the Double Entry System in accounting?

• Every transaction affects only one account

• Every transaction affects at least two accounts, with equal debits and credits

• Only cash transactions are recorded

• Only credit transactions are recorded

In the Double Entry System, what is the effect of purchasing office equipment for cash?

• Debit Office Equipment, Credit Cash

• Debit Cash, Credit Office Equipment

• Debit Sales, Credit Office Equipment

• Debit Office Equipment, Credit Sales

What is the main purpose of preparing a Trial Balance?

• To calculate profit or loss

• To check the arithmetical accuracy of ledger accounts

• To record all transactions

• To prepare the balance sheet

If the debit and credit columns of a Trial Balance do not agree, what does this indicate?

• The accounts are correct

• There is an error in the ledger accounts

• The business is profitable

• The business is in loss

Which of the following is NOT a possible reason for a Trial Balance to disagree?

• Omission of a transaction from the books

• Recording a transaction twice on the same side

• Correctly recording equal debits and credits

• Posting an amount to the wrong side of an account

Which of the following accounts would normally have a debit balance?

• Capital

• Sales

• Wages

• Creditors

If a business receives £500 from a debtor, how is this recorded in the books?

• Debit Debtors, Credit Cash

• Debit Cash, Credit Debtors

• Debit Sales, Credit Debtors

• Debit Cash, Credit Sales