31
Chapter 3—The Double-Entry Framework
TRUE/FALSE
1. An increase or decrease in any asset, liability, owner’s equity, revenue, or expense is always
accompanied by an offsetting change within the basic accounting elements.
ANS: T DIF: Easy OBJ: LO 3-1 MSC: AACSB Communication
2. A T account has three parts: the title, the debit side, and the credit side.
ANS: T DIF: Easy OBJ: LO 3-1 MSC: AACSB Communication
3. To debit an account is to enter an amount on the left side of the account.
ANS: T DIF: Easy OBJ: LO 3-3 MSC: AACSB Communication
4. Asset accounts normally have debit balances.
ANS: T DIF: Easy OBJ: LO 3-3 MSC: AACSB Communication
5. Revenue accounts normally have debit balances.
ANS: F DIF: Easy OBJ: LO 3-3 MSC: AACSB Communication
6. Prepaid Insurance is an expense account.
ANS: F DIF: Easy OBJ: LO 3-4 MSC: AACSB Communication
7. At least two accounts are affected by every transaction.
ANS: T DIF: Easy OBJ: LO 3-4 MSC: AACSB Communication
8. The fact that each transaction has a dual effect on the accounting elements provides the basis for
what is called complex-entry accounting.
ANS: F DIF: Easy OBJ: LO 3-1 MSC: AACSB Communication
9. The sum of the debits must equal the sum of the credits on the trial balance.
ANS: T DIF: Easy OBJ: LO 3-5 MSC: AACSB Communication
10. Prepaid insurance and supplies are assets because they will provide benefits for more than one
month.
ANS: T DIF: Easy OBJ: LO 3-4 MSC: AACSB Communication
11. The difference between the footings of an account is called the balance.
Chapter 3—The Double-Entry Framework 32
ANS: T DIF: Easy OBJ: LO 3-2 MSC: AACSB Communication
12. The trial balance is used in preparing financial statements.
ANS: T DIF: Easy OBJ: LO 3-5 MSC: AACSB Communication
13. A credit increases liabilities and owner’s equity.
ANS: T DIF: Easy OBJ: LO 3-3 MSC: AACSB Communication
14. Liability accounts normally have debit balances.
ANS: F DIF: Easy OBJ: LO 3-3 MSC: AACSB Communication
15. Revenues decrease owner’s equity.
ANS: F DIF: Easy OBJ: LO 3-3 MSC: AACSB Communication
16. Payment of rent decreases the Cash account.
ANS: T DIF: Easy OBJ: LO 3-4 MSC: AACSB Communication
17. Withdrawals of cash and other assets by the owner for personal reasons decrease owner’s equity.
ANS: T DIF: Easy OBJ: LO 3-3 MSC: AACSB Communication
18. If services for the month total $7,000 in cash and $1,500 on account, the revenue account
increases $8,500.
ANS: T DIF: Easy OBJ: LO 3-4 MSC: AACSB Communication
19. When services are performed for which payment will be received later, accounts receivable
increases.
ANS: T DIF: Easy OBJ: LO 3-4 MSC: AACSB Communication
20. When debits equal credits for a transaction, the accounting equation is in balance.
ANS: T DIF: Easy OBJ: LO 3-4 MSC: AACSB Communication
21. Jesse made a cash purchase of computer printer cartridges to last for about three months; this
transaction increased Supplies and decreased Cash.
ANS: T DIF: Easy OBJ: LO 3-4 MSC: AACSB Communication
22. The balance of a T account is on the side with the larger footing.
ANS: T DIF: Easy OBJ: LO 3-2 MSC: AACSB Communication
23. An account is a form or record used to keep track of the increases or decreases in the individual
assets, liabilities, owner’s equity, revenues, and expenses of a business entity.
Chapter 3—The Double-Entry Framework 33
ANS: T DIF: Easy OBJ: LO 3-1 MSC: AACSB Communication
24. Owner’s equity includes four types of accounts: Owner’s Capital, Revenues, Expenses, and
Owner’s Drawing.
ANS: T DIF: Easy OBJ: LO 3-3 MSC: AACSB Communication
25. Increases in owner’s equity are entered as credits.
ANS: T DIF: Easy OBJ: LO 3-3 MSC: AACSB Communication
26. The owner’s capital account normally has a credit balance.
ANS: T DIF: Easy OBJ: LO 3-3 MSC: AACSB Communication
27. The purchase of a supply of markers for three months should be recorded as an increase in
revenue and a decrease in cash.
ANS: F DIF: Easy OBJ: LO 3-4 MSC: AACSB Communication
28. The accounting equation must remain in balance.
ANS: T DIF: Easy OBJ: LO 3-5 MSC: AACSB Communication
29. A trial balance is a formal business report.
ANS: F DIF: Easy OBJ: LO 3-5 MSC: AACSB Communication
30. A trial balance is taken periodically to check the equality of the debits and credits.
ANS: T DIF: Easy OBJ: LO 3-5 MSC: AACSB Communication
31. A trial balance is a list of all accounts showing the title and balance of each account.
ANS: T DIF: Easy OBJ: LO 3-5 MSC: AACSB Communication
32. If services for the month total $3,300 in cash and $700 on account, the cash account increases
$700.
ANS: F DIF: Easy OBJ: LO 3-4 MSC: AACSB Communication
33. If services for the month total $3,300 in cash and $700 on account, Accounts Receivable increases
$700.
ANS: T DIF: Easy OBJ: LO 3-4 MSC: AACSB Communication
34. Services on account increase a revenue account and increase the cash account.
ANS: F DIF: Easy OBJ: LO 3-4 MSC: AACSB Communication
Chapter 3—The Double-Entry Framework 34
35. Elysa paid $135 for utilities for her office; this transaction increased Cash and the expense
account.
ANS: F DIF: Easy OBJ: LO 3-4 MSC: AACSB Communication
Chapter 3—The Double-Entry Framework 35
36. John received $350 for delivery services; this transaction increased Cash and revenue.
ANS: T DIF: Easy OBJ: LO 3-4 MSC: AACSB Communication
37. Kate made a $475 payment on her company van. She should credit Accounts Payable and debit
the automobile account.
ANS: F DIF: Easy OBJ: LO 3-4 MSC: AACSB Communication
38. Craig deposits $6,000 in an account to start a new business. He should debit Cash and credit his
capital account.
ANS: T DIF: Easy OBJ: LO 3-4 MSC: AACSB Communication
39. Mandy withdraws $600 from her business. This transaction increases cash but decreases owner’s
equity.
ANS: F DIF: Easy OBJ: LO 3-4 MSC: AACSB Communication
MULTIPLE CHOICE
1. The standard T account includes all of the following EXCEPT
a.
a credit side.
b.
a debit side.
c.
a title.
d.
the current date.
ANS: D DIF: Easy OBJ: LO 3-1 MSC: AACSB Communication
2. Asset and expense accounts normally have
a.
credit balances.
b.
large balances.
c.
debit balances.
d.
negative balances.
ANS: C DIF: Easy OBJ: LO 3-3 MSC: AACSB Communication
3. Accounts that affect owner’s equity are
a.
assets, capital, and revenue.
b.
capital, liabilities, and expenses.
c.
expenses, capital, and drawing.
d.
drawing, assets, and liabilities.
ANS: C DIF: Easy OBJ: LO 3-3 MSC: AACSB Communication
4. Increases are entered on the credit side of a(n)
a.
asset account.
b.
liability account.
c.
expense account.
d.
drawing account.
Chapter 3—The Double-Entry Framework 36
ANS: B DIF: Easy OBJ: LO 3-3 MSC: AACSB Communication
5. A credit
a.
increases assets.
b.
is on the right side.
c.
decreases liabilities.
d.
decreases owner’s equity.
ANS: B DIF: Easy OBJ: LO 3-3 MSC: AACSB Communication
6. A T account has which of the following three major parts?
a.
a title, a debit side, and a credit side
b.
a title, a current date, and a balance
c.
a debit side, a credit side, and a total column
d.
a debit side, a credit side, and a balance
ANS: A DIF: Easy OBJ: LO 3-1 MSC: AACSB Communication
7. A cash payment on a loan affects which of the following accounts?
a.
Cash and Accounts Receivable
b.
Cash and Notes Payable
c.
Cash and an expense account
d.
Cash and a revenue account
ANS: B DIF: Easy OBJ: LO 3-4 MSC: AACSB Communication
8. The drawing account should be used to show
a.
the amount the owner has invested in the business.
b.
the amount the owner has taken out of the business.
c.
the amount the business has earned.
d.
the amount the business has spent.
ANS: B DIF: Easy OBJ: LO 3-3 MSC: AACSB Communication
9. A debit
a.
is on the left side.
b.
decreases assets.
c.
increases liabilities.
d.
increases owner’s equity.
ANS: A DIF: Easy OBJ: LO 3-3 MSC: AACSB Communication
10. Liability, owner’s capital, and revenue accounts normally have
a.
debit balances.
b.
large balances.
c.
negative balances.
d.
credit balances.
ANS: D DIF: Easy OBJ: LO 3-3 MSC: AACSB Communication
11. A credit represents a decrease in
a.
an asset.
b.
a liability.
c.
owner’s equity.
Chapter 3—The Double-Entry Framework 37
d.
revenues.
ANS: A DIF: Easy OBJ: LO 3-3 MSC: AACSB Communication
12. Totals on the debit and credit sides to determine the balance of an account are known as
a.
rulings.
b.
credits.
c.
debits.
d.
footings.
ANS: D DIF: Easy OBJ: LO 3-2 MSC: AACSB Communication
13. The fact that each transaction has a dual effect on the accounting elements provides the basis for
what is called
a.
single-entry accounting.
b.
compound-entry accounting.
c.
multiple-entry accounting.
d.
double-entry accounting.
ANS: D DIF: Easy OBJ: LO 3-1 MSC: AACSB Communication
14. An increase in an asset account may be offset by a(n)
a.
decrease in a liability account.
b.
increase in an expense account.
c.
increase in owner’s equity.
d.
decrease in owner’s equity.
a.
balance.
b.
ruling.
c.
footing.
d.
trial balance.
a.
decreases with increased revenue.
b.
increases with increased expenses.
c.
has a normal balance of a debit.
d.
increases when the owner invests money in the business.
a.
can be either a debit or a credit balance.
b.
is a debit balance.
c.
is a credit balance.
d.
is called a footing.
