Debits & Credits Quiz

QUESTIONS

1. The Chief Executive Officer is responsible for choosing the board of directors...

        A) True

        B) False

 

2. If the accounting equation is in proper balance, it is impossible for there to be a mistake in the accounting records...

        A) True

        B) False

 

3. Debits and credits are a form of...

        A) Error detection

        B) Separating positive and negative numbers

 

4. Asset accounts have a...

        A) Debit balance

        B) Credit balance

 

5. Liability accounts have a...

        A) Debit balance

        B) Credit balance

 

6. Owners' equity accounts have a...

        A) Debit balance

        B) Credit balance

 

7. Expense accounts have a...

        A) Debit balance

        B) Credit balance

 

8) Revenue accounts have a...

        A) Debit balance

        B) Credit balance

 

9) A credit to the income statement during the year will end up...

        A) Increasing owners' equity

        B) Decreasing owners' equity

 

10) Debits and credits are in proper balance if the trial balance sums to...

        A) 100

        B) 0

 

ANSWER KEY:

1B, 2B, 3A, 4A, 5B, 6B, 7A, 8B, 9A, 10B

 

PRACTICE PROBLEMS

1. If a company has $500,000 of revenue and $600,000 worth of expenses in a given year, what is the effect on the balance sheet?

2. If a company purchases equipment for $100,000 and pays in cash immediately, what is the journal entry to record the transaction?

3. If a company purchases equipment for $100,000 and promises to pay in 90 days, what is the journal entry to record the transaction?

4. If a company purchases equipment for $100,000 and pays $22,000 in cash immediately with a promise to pay the rest, what is the journal entry to record the transaction?

5. If a company receives $100,000 for a job but has only completed half of the work, what is the journal entry to record the transaction?

6. If a company pays $150,000 to a supplier but has only incurred half of the expense, what is the journal entry to record the transaction?

 

ANSWER KEY:

1: The company will be operating at a loss and have negative net income of $100,000. Since net income (net profit) travels to retained earnings at the end of the year, the balance sheet will show a reduction in owners' equity worth $100,000.

 

2.

Property, Plant & Equipment (PP&E) $100,000

        Cash ($100,000)

 

3.

Property, Plant & Equipment (PP&E) $100,000

        Accounts Payable ($100,000)

 

4.

Property, Plant & Equipment (PP&E) $100,000

        Cash ($22,000)

        Accounts Payable ($88,000)

 

5.

Cash $100,000

        Revenue ($50,000)

        Unearned Revenue ($50,000)

 

6.

Prepaid Expenses $75,000

Supplies Expense $75,000

        Cash ($150,000)