3.2 Recording transactions

• What is the fundamental principle of the double entry bookkeeping system?

  Every transaction affects two accounts
• Debits decrease liabilities and equity.


  True
• Debits increase the value of assets
• What type of account is 'Cash' considered in the double entry system?

  Asset
• Revenues are increased by debits.

  False
• For every transaction, the total debits must equal the total credits
• Every transaction in double entry bookkeeping keeps the accounting equation balanced.

  True
• What account is debited when a business purchases office supplies for cash?

  'Office Supplies'
• What are the five primary types of accounts in the double entry bookkeeping system?

  Assets, liabilities, equity, revenues, expenses
• What equation must remain balanced in the double entry bookkeeping system?

  Assets = Liabilities + Equity
• What is a liability in accounting terms?

  Obligations to outside parties
• What is an example of a revenue account?

  Sales Revenue
• A debit (Dr) increases assets and expenses
• What does a credit (Cr) increase in the accounting equation?

  Liabilities, equity, and revenues
• Credits decrease assets and expenses.

  True
• A credit to 'Accounts Payable' increases its liability
• What effect does a credit have on 'Expenses'?

  Decreases them
• Order the steps in recording the purchase of equipment for cash in the double entry system:

  1️⃣ Debit the 'Equipment' (Asset) account

  2️⃣ Credit the 'Cash' (Asset) account
• A debit increases assets and expenses
• The purchase of office supplies for cash results in a credit to the 'Cash' account
• Each transaction in double entry bookkeeping ensures the accounting equation remains balanced.


  True
• In the double entry bookkeeping system, there are five primary types of accounts
• What is an example of an asset account?

  Cash
• Equity represents the owner's stake in the business.


  True
• What is an example of an expense account?

  Salaries
• When a business receives cash for services, the cash account is debited.

  True
• In the double-entry bookkeeping system, there are five main types of accounts
• If a business purchases office supplies for cash, which asset account is debited?

  Office Supplies
• What is the fundamental principle behind the double entry bookkeeping system?

  Every transaction affects two accounts
• If a business purchases office supplies for cash, the cash account is credited.

  True
• Assets are increased by a credit entry.

  False
• Equity is increased by a debit entry.

  False
• Steps to record a transaction using the double entry bookkeeping system

  1️⃣ Identify affected accounts

  2️⃣ Determine debit and credit entries

  3️⃣ Update ledger accounts
• Debiting an asset account decreases its balance.

  False
• Crediting equity increases its balance.


  True
• What type of entry increases the balance of expenses?

  Debit
• What account is debited when office supplies are purchased for cash?

  Office Supplies
• Steps to record a transaction using the double entry bookkeeping system

  1️⃣ Identify affected accounts

  2️⃣ Determine debit and credit entries

  3️⃣ Update ledger accounts
• Balancing accounts ensures that the total debits equal the total credits
• The rules of debit and credit determine how transactions affect different types of accounts