Double-Entry Bookkeeping: Master the Basics of Accounting

Question 1

When purchasing inventory on account, which entry correctly reflects the transaction?

Accepted Answer

Debit Inventory, Credit Accounts Payable

Answer

Debit Accounts Payable, Credit Inventory

Answer

Debit Cash, Credit Inventory

Answer

Debit Accounts Payable, Credit Cash

Question 2

Which of the following is the fundamental principle behind the double-entry bookkeeping system?

Accepted Answer

Every financial transaction affects at least two accounts, with an equal debit in one account and an equal credit in another.

Answer

The balance sheet must always equal zero.

Answer

Only expense transactions are recorded.

Answer

Only revenue transactions are recorded.

Question 3

What is the primary purpose of a trial balance?

Accepted Answer

To check the equality of total debits and total credits, ensuring the accounting equation is in balance.

Answer

To calculate profit or loss.

Answer

To summarize transactions.

Answer

To record transactions.

Question 4

What is the fundamental accounting equation?

Accepted Answer

Assets = Liabilities + Equity

Answer

Revenue - Expenses = Profit

Answer

Debits = Credits

Question 5

What is the primary function of a ledger in double-entry bookkeeping?

Accepted Answer

To organize and summarize transactions by their respective accounts.

Answer

To calculate profit or loss.

Answer

To record transactions in chronological order.

Answer

To prepare financial statements.

Question 6

Which of the following is a potential disadvantage of using a double-entry bookkeeping system?

Accepted Answer

It can be more time-consuming and complex compared to simpler accounting methods.

Answer

It is only suitable for large businesses.

Answer

It requires specialized software.

Answer

It is not as accurate as other accounting systems.

Question 7

What is the primary purpose of a financial statement?

Accepted Answer

To communicate information about a company's financial performance and position to users, including investors, creditors, and management.

Answer

To calculate taxes.

Answer

To record transactions.

Question 8

Which of the following is the fundamental principle of double-entry bookkeeping?

Accepted Answer

Every transaction affects at least two accounts equally.

Answer

Debits must always be greater than credits.

Answer

Bookkeeping must be done monthly.

Answer

Assets equal Liabilities plus Equity.

Question 9

Which of the following accounts is debited when purchasing inventory on account?

Accepted Answer

Inventory

Answer

Accounts Payable

Answer

Supplies Expense

Answer

Cash

Question 10

What is the characteristic of a balanced trial balance?

Accepted Answer

The total debits equal the total credits.

Answer

The trial balance includes all accounts with non-zero balances.

Answer

The sum of the debits in each account equals the sum of the credits in each account.

Question 11

What is the purpose of a closing entry?

Accepted Answer

To transfer temporary account balances to permanent accounts, zeroing out the temporary accounts.

Answer

To record new transactions

Answer

To correct errors in previous entries

Question 12

What is the correct definition of a 'debit' in double-entry bookkeeping?

Accepted Answer

An entry on the left side of an account that increases an asset or expense account.

Answer

An entry on the right side of an account that increases an asset or expense account.

Answer

An entry that affects only permanent accounts.

Answer

An entry that decreases an asset or expense account.

Question 13

What is the formula for calculating net income?

Accepted Answer

Revenue minus Expenses

Answer

Assets minus Liabilities

Answer

Credit Sales minus Cash Sales

Answer

Debits minus Credits

Question 14

Which of the following is an example of an adjusting entry?

Accepted Answer

Recording depreciation expense

Answer

Paying rent expense

Answer

Closing revenue accounts

Answer

Recording a cash sale

Question 15

Which of the following best describes the fundamental principle of double-entry bookkeeping?

Accepted Answer

For every transaction, the total debits are equal to the total credits.

Answer

Assets always equal liabilities plus equity.

Answer

Transactions are recorded in the order they occur.

Answer

Financial statements must always be prepared on a cash basis.

Question 16

When a company purchases inventory on account, which account is debited?

Accepted Answer

Inventory

Answer

Accounts Receivable

Answer

Cash

Answer

Accounts Payable

Question 17

Which of the following is NOT considered an asset account?

Accepted Answer

Revenue

Answer

Equipment

Answer

Accounts Receivable

Answer

Cash

Question 18

Which of the following trial balance errors would make it impossible to prepare financial statements?

Accepted Answer

Total debits do not equal total credits

Answer

Adjusted trial balance does not balance

Answer

Ending cash balance does not agree with the bank statement

Answer

Net income does not match retained earnings

Question 19

Depreciation is an expense that:

Accepted Answer

Reduces the carrying value of an asset over its useful life

Answer

Increases the value of an asset over time

Answer

Is only recorded when an asset is sold

Question 20

The purpose of an income statement is to report:

Accepted Answer

The financial performance of a business over a specific period

Answer

The cash flows of a business over a specific period

Answer

The financial position of a business at a specific point in time

Question 21

Which of the following is a potential limitation of double-entry bookkeeping?

Accepted Answer

It may not provide complete information about the cash position of a business

Answer

It is too complex for most businesses to use

Answer

It is unsuitable for recording non-financial transactions

Question 22

In a double-entry bookkeeping system, which account is used to record the personal drawings of the owner?

Accepted Answer

Drawings

Answer

Retained Earnings

Answer

Sales Revenue

Answer

Capital

Question 23

Which of the following is a fundamental principle of double-entry bookkeeping?

Accepted Answer

Double entry

Answer

Triple entry

Answer

Single entry

Answer

Quadruple entry

Question 24

The fundamental accounting equation states that:

Accepted Answer

Assets = Liabilities + Equity

Answer

Revenue - Expenses = Profit

Answer

Debits = Credits

Answer

Income - Loss = Capital

Question 25

What is the initial step in the accounting cycle?

Accepted Answer

Recording transactions in a journal

Answer

Creating financial statements

Answer

Preparing a trial balance

Question 26

What distinguishes a debit from a credit in double-entry bookkeeping?

Accepted Answer

A debit increases an asset or expense account and decreases a liability, equity, or revenue account, while a credit does the opposite.

Answer

A debit increases a liability account and decreases an asset or expense account.

Answer

A credit increases an asset account and decreases a liability or equity account.

Question 27

Which of the following summarizes the transactions recorded in the journal?

Accepted Answer

Trial balance

Answer

Income statement

Answer

Balance sheet

Answer

Statement of cash flows

Question 28

Which of the following accounts is considered a permanent account?

Accepted Answer

Capital

Answer

Salaries Expense

Answer

Accounts Receivable

Answer

Revenue

Question 29

What is the primary purpose of a balance sheet?

Accepted Answer

To provide a snapshot of a company's financial position at a specific point in time.

Answer

To show the profit or loss of a business over a period of time.

Answer

To show the cash flows of a business over a period of time.

Question 30

Which of the following is NOT a characteristic of double-entry bookkeeping?

Accepted Answer

Single-sided recording

Answer

Recording transactions in a chronological order

Answer

Use of debits and credits

Answer

Preparation of financial statements

Question 31

Which of the following is NOT a core principle of double-entry bookkeeping?

Accepted Answer

Assets exceed liabilities.

Answer

Every transaction affects at least two accounts.

Answer

Debits must equal credits.

Answer

Assets are equal to the sum of liabilities and equity.

Question 32

What is the main purpose of the accounting equation (Assets = Liabilities + Equity)?

Accepted Answer

To show the balance between a business's assets, liabilities, and owner's equity.

Answer

To record every financial transaction.

Answer

To calculate profit or loss.

Question 33

Which of these is a type of financial statement?

Accepted Answer

Income Statement

Answer

General Ledger

Answer

Chart of Accounts

Answer

Trial Balance

Question 34

What is the main purpose of a trial balance?

Accepted Answer

To ensure that the total debits in the accounting system equal the total credits.

Answer

To summarize all the transactions in a specific period.

Answer

To identify and correct errors in financial statements.

Question 35

What is the primary purpose of closing entries?

Accepted Answer

To reset temporary accounts to zero at the end of an accounting period, transferring their balances to permanent accounts.

Answer

To adjust accounting entries for errors or omissions.

Answer

To prepare the financial statements for the next accounting period.

Question 36

Which type of account is specifically used to record expenses?

Accepted Answer

Expense account

Answer

Permanent account

Answer

Capital account

Answer

Balance sheet account

Question 37

Which of the following is an example of a capital account, representing ownership in a company?

Accepted Answer

Share capital

Answer

Inventory

Answer

Interest Expense

Question 38

What is the double-entry bookkeeping entry for purchasing inventory on credit?

Accepted Answer

Inventory (debit), Accounts payable (credit)

Answer

Inventory (credit), Accounts payable (debit)

Answer

Cash (debit), Inventory (credit)

Answer

Accounts payable (debit), Inventory (credit)

Question 39

What is the fundamental principle that forms the basis of double-entry bookkeeping?

Accepted Answer

Every transaction affects at least two accounts, with one debit and one equal and opposite credit.

Answer

Revenue minus expenses equals net income.

Answer

Assets equal liabilities plus equity.

Question 40

What is the main purpose of a journal in accounting?

Accepted Answer

To record transactions in chronological order, providing a detailed history of financial activity.

Answer

To prepare financial statements, providing summaries of financial performance and position.

Answer

To summarize transactions by account, providing a snapshot of account balances.

Question 41

Which type of account increases when a debit is recorded and decreases with a credit?

Accepted Answer

Expense

Answer

Asset

Answer

Liability

Answer

Equity

Question 42

What is the main purpose of the accounting equation?

Accepted Answer

To represent the fundamental relationship between assets, liabilities, and equity, ensuring the balance of debits and credits in the system.

Answer

To calculate net income for a reporting period, reflecting profitability.

Answer

To detect errors in financial statements by comparing balances.

Question 43

Which of these transactions would result in a debit to the Cash account?

Accepted Answer

Receiving payment from a customer for services rendered.

Answer

Issuing new shares of stock to investors.

Answer

Purchasing new equipment for the business.

Answer

Paying rent for office space.

Question 44

What type of account is a loan that a business owes to a bank?

Accepted Answer

Liability

Answer

Asset

Answer

Expense

Answer

Equity

Question 45

Which financial statement summarises a business's financial activity over a period, like a month or year?

Accepted Answer

Income statement

Answer

Cash flow statement

Answer

Balance sheet

Answer

Statement of changes in equity

Question 46

What is the main purpose of a trial balance in double-entry bookkeeping?

Accepted Answer

To check if the total debits equal the total credits.

Answer

To find specific errors in the account balances.

Answer

To directly prepare the financial statements.

Answer

To calculate financial ratios for analysis.

Question 47

A bookkeeper accidentally records £500 as £50.  A trial balance will NOT detect this kind of error. What is it called?

Accepted Answer

Error of original entry

Answer

Compensating error

Answer

Casting error

Answer

Transposition error

Question 48

What is the main role of internal control in double-entry bookkeeping?

Accepted Answer

To prevent and detect errors and fraud

Answer

To make the accounting process less complex

Answer

To guarantee the complete accuracy of financial statements

Answer

To directly provide all the information for business decisions

Question 49

A business provides a service and receives cash immediately.  Which account should be credited?

Accepted Answer

Sales Revenue

Answer

Cash

Answer

Service Expenses

Answer

Accounts Receivable

Question 50

A company buys office supplies but will pay later.  Which accounts are affected, and how?

Accepted Answer

Supplies (Debit) and Accounts Payable (Credit)

Answer

Supplies (Credit) and Accounts Payable (Debit)

Answer

Cash (Debit) and Accounts Payable (Credit)

Answer

Supplies (Debit) and Cash (Credit)

Question 51

What three elements are linked by the accounting equation?

Accepted Answer

Assets, Liabilities, and Owner's Equity

Answer

Cash Flow, Investing, and Financing Activities

Answer

Revenue, Expenses, and Net Income

Answer

Debits, Credits, and the Trial Balance

Question 52

A company pays its employees their wages.  What is the effect on the accounting equation?

Accepted Answer

Decrease in assets and decrease in owner's equity

Answer

Increase in assets and increase in owner's equity

Answer

Decrease in assets and increase in owner's equity

Answer

Increase in assets and decrease in owner's equity

Question 53

Which type of account typically shows a credit balance?

Accepted Answer

Accounts Payable

Answer

Equipment

Answer

Cash

Answer

Sales Revenue

Question 54

A business receives a utility bill but does not pay it immediately. How is this recorded in the double-entry system?

Accepted Answer

Debit Utilities Expense, Credit Accounts Payable

Answer

Debit Cash, Credit Utilities Expense

Answer

Debit Accounts Payable, Credit Utilities Expense

Answer

Debit Utilities Expense, Credit Cash

Question 55

A company buys a piece of equipment for £10,000. What is the impact on the accounting equation?

Accepted Answer

Increase in assets (equipment) and increase in liabilities (if financed) or decrease in owner's equity (if paid for in cash)

Answer

Decrease in assets and decrease in owner's equity

Question 56

The process of summarizing all debit and credit balances in the general ledger is known as:

Accepted Answer

Preparing a Trial Balance

Answer

Posting to the Ledger

Answer

Preparing a Balance Sheet

Question 57

Which of the following is NOT a key principle of double-entry bookkeeping?

Accepted Answer

All transactions are recorded in a single account

Answer

Every transaction affects at least two accounts

Answer

The accounting equation must always balance

Answer

Debits must equal credits

Question 58

A business pays a supplier for an invoice previously recorded as Accounts Payable. Which of the following correctly reflects the accounting entries?

Accepted Answer

Debit Accounts Payable, Credit Cash

Answer

Debit Accounts Payable, Credit Sales Revenue

Answer

Debit Cash, Credit Accounts Payable

Answer

Debit Cash, Credit Sales Revenue