Question 1

Which of the following best describes the effect of a debit entry on an asset account?

Accepted Answer

It increases the asset account.

Question 2

When a company purchases equipment for cash, which accounts are affected and how?

Accepted Answer

Equipment is debited and cash is credited.

Question 3

Which of the following statements is TRUE regarding the use of debits and credits in accounting?

Accepted Answer

Debits increase assets and expenses, while credits increase liabilities, equity, and revenues.

Question 4

A company pays $2,000 cash to settle an account payable. What is the correct journal entry?

Accepted Answer

Debit accounts payable $$2,000; credit cash 2$$,000

Question 5

If a company receives $5,000 cash from a customer for services to be performed in the future, which accounts are affected?

Accepted Answer

Debit cash $$5,000; credit unearned revenue 5$$,000

Question 6

Which equation correctly represents the basic accounting equation?

Accepted Answer

$$Assets = Liabilities + Equity$$

Question 7

A company records the purchase of inventory on account for $10,000. What is the correct journal entry?

Accepted Answer

Debit inventory $$10,000; credit accounts payable 10$$,000

Question 8

Which of the following transactions would increase both an asset and equity account?

Accepted Answer

Owner invests cash into the business.

Question 9

If a company earns revenue on account, which accounts are affected and how?

Accepted Answer

Debit accounts receivable; credit revenue

Question 10

Which of the following best describes the effect of a credit entry on a liability account?

Accepted Answer

It increases the liability account.

Question 11

A company pays $1,000 for utilities expense in cash. What is the correct journal entry?

Accepted Answer

Debit utilities expense $$1,000; credit cash 1$$,000

Question 12

Which of the following is TRUE about the effect of credits on revenue accounts?

Accepted Answer

Credits increase revenue accounts.

Question 13

A company receives a bill for $3,000 for advertising expense to be paid next month. What is the correct journal entry?

Accepted Answer

Debit advertising expense $$3,000; credit accounts payable 3$$,000

Question 14

Which of the following transactions would decrease both an asset and a liability?

Accepted Answer

Paying off a loan with cash.

Question 15

If a company pays $500 cash for supplies previously purchased on account, what is the effect on the accounting equation?

Accepted Answer

$$Assets$$ decrease and $$Liabilities$$ decrease

Question 16

Which of the following is the correct effect of a debit entry on an expense account?

Accepted Answer

It increases the expense account.

Question 17

A company provides services and immediately receives $2,000 cash. What is the correct journal entry?

Accepted Answer

Debit cash $$2,000; credit service revenue 2$$,000

Question 18

Which of the following best describes the dual effect of every transaction in accounting?

Accepted Answer

Every transaction affects at least two accounts.

Question 19

A company issues common stock for $10,000 cash. What is the correct journal entry?

Accepted Answer

Debit cash $$10,000; credit common stock 10$$,000

Debits and Credits in Financial Accounting: Concepts and Applications

Study Guide - Practice Questions