3.1 Principles of double-entry bookkeeping

Cards (54)

  • What is the fundamental principle of double-entry bookkeeping?
    Assets = Liabilities + Equity
  • A debit increases asset accounts or decreases liability and equity accounts.
  • The accounting equation expresses the fundamental relationship between assets, liabilities, and equity.
  • What is the accounting equation in double-entry bookkeeping?
    Assets = Liabilities + Equity
  • The accounting equation provides a clear understanding of a company's financial position.

    True
  • What type of account increases equity when recorded?
    Revenue
  • Income earned from selling goods or services is called revenue
  • Match the account type with its definition:
    Assets ↔️ Resources owned or controlled by a company
    Liabilities ↔️ Obligations to pay others in the future
    Equity ↔️ Owner's stake in the company
    Revenue ↔️ Income earned from selling goods
    Expenses ↔️ Costs incurred to operate the business
  • Arrange the following steps in the process of recording a financial transaction in double-entry bookkeeping:
    1️⃣ Identify the transaction
    2️⃣ Determine the affected accounts
    3️⃣ Apply the debit and credit rules
    4️⃣ Record the transaction
  • In double-entry bookkeeping, total debits must always equal total credits.

    True
  • The accounting equation ensures that assets are balanced with liabilities and equity.

    True
  • A debit increases liabilities or decreases equity.
    False
  • A debit increases assets or decreases liabilities and equity.
  • Match the account type with its definition and example:
    Assets ↔️ Resources owned by a company ||| Cash, inventory
    Liabilities ↔️ Obligations to pay others ||| Loans, accounts payable
    Equity ↔️ Owner's stake in the company ||| Capital, retained earnings
  • Retained earnings are an example of an equity account.

    True
  • Expenses decrease equity in a business.

    True
  • In double-entry bookkeeping, five main types of accounts are used, including assets, liabilities, equity, revenue, and expenses
  • In double-entry bookkeeping, revenue increases equity
  • Credits increase liability and revenue accounts.
  • Double-entry bookkeeping ensures that total debits equal total credits
  • The accounting equation is used to ensure that financial records remain balanced
  • A debit increases asset accounts and decreases liability, equity, and revenue accounts, whereas a credit decreases asset accounts and increases liability, equity, and revenue accounts.balance
  • What effect does a debit have on asset accounts?
    Increases
  • What is the purpose of debit and credit entries in double-entry bookkeeping?
    Maintain accounting equation
  • Each account type in double-entry bookkeeping has a normal balance where increases are recorded.

    True
  • What is the normal balance for equity accounts?
    Credit
  • Receiving cash from a customer for services provided results in a debit to cash and a credit to service revenue
  • The accounting equation states that Assets = Liabilities + Equity.

    True
  • What are the five main types of accounts used in double-entry bookkeeping?
    Assets, Liabilities, Equity, Revenue, Expenses
  • What is an example of an asset account?
    Cash
  • What is the accounting equation?
    Assets = Liabilities + Equity
  • A debit increases liability, equity, and revenue accounts.
    False
  • Assets and expenses increase with a debit
  • What is the journal entry when a company purchases equipment for $2,000 with cash?
    Debit Equipment $2,000; Credit Cash $2,000
  • What is the normal balance for asset accounts?
    Debit
  • Steps in recording a transaction using double-entry bookkeeping
    1️⃣ Identify the accounts affected
    2️⃣ Determine whether to debit or credit each account
    3️⃣ Record the transaction in the journal
    4️⃣ Verify the accounting equation
  • T-accounts are visual tools used to track changes in individual accounts through debits and credits
  • What happens to the cash account when a company buys equipment for cash?
    It decreases
  • The accounting equation states that Assets = Liabilities + Equity.

    True
  • What is used in double-entry bookkeeping to record changes in financial accounts?
    Debits and credits