Chapter 13 – Worksheet to debits and credits
TRUE/FALSE
1. An increase in assets and an increase in liabilities is the same as saying assets have been debited
and liabilities have been credited.
2. The worksheet approach and the T account approach to recording transactions are not really
comparable, as the worksheet approach uses increases and decreases whereas the T account
approach uses debits and credits.
3. The owner of an entity pays cash into the company bank account. The effect of this is to record an
increase to cash on the left-hand side of the worksheet and an increase to equity on the right-hand
side of the worksheet. This is the same as recording a debit on the left-hand side of the T account
Cash and a credit on the right-hand side of the T account Owners’ Equity.
4. When using an extended trial balance approach to recording end-of-period adjustments, there is a
risk of errors and omissions as this approach will only result in the recording of one side of the
transaction.
5. Increases in assets involved debits and increases to equity and liabilities involve credits under the
ledger-based approach to recording transactions.
6. A trial balance is prepared to check on the arithmetical accuracy of the ledger.
7 Decreases in assets are credited, and increases in liabilities are debited.
8. An accounting journal is a book of original entry that is prepared to record transactions in
chronological order.
9. The recording of transactions in the worksheet and ledger both revolve around the principle of
duality and the accounting equation.
MULTIPLE CHOICE
1. Which of the following statements about double-entry bookkeeping is true?
A.
The double-entry principle is referred to as accrual accounting.
B.
The total amount debited must equal the total amount credited.
C.
If one account is increased, then another account must be decreased.
D.
The total number of accounts debited must equal the total number of accounts credited.
2. Which of the following accounts normally has a debit balance?
A.
Liabilities
B.
Owners’ Equity
C.
Revenues
D.
Expenses
3. Which of the following does not normally have a credit balance?
A.
Asset
B.
Liability
C.
Equity
D.
Revenue
4. As used in accounting, what do the terms ‘debit’ and ‘credit’ mean?
A.
Bad and good things, respectively, that happen to a business.
B.
Increases and decreases, respectively.
C.
Left and right sides, respectively, of an account.
D.
First and second, respectively.
5. Which of the following accounts would be increased by a debit entry?
A.
Accounts Receivable
B.
Owners’ Equity
C.
Accounts Payable
D.
Sales
6. A credit entry is used to record increases to:
A.
Accounts Receivable.
B.
Accounts Payable.
C.
Wages Expense.
D.
Cash.
7. The ledger accounts for accumulated depreciation and allowance for doubtful debts:
A.
would normally hold credit balances.
B.
would normally hold debit balances.
C.
represent expenses.
D.
represent liabilities.
8. The recording of transactions in the ledger always involves:
A.
same number of debit and credit entries.
B.
same dollar amounts of debits and credits.
C.
the original recording of the transaction.
D.
plenty of work for accountants.
9. An accounting journal:
A.
is an original book of entry in accounting records.
B.
records transactions on a chronological basis.
C.
provides the information for recording in the ledger.
D.
all of the above.
10. On 1 August XYZ Ltd issued $240,000 shares to shareholders in exchange for cash of $100,000
and land of $140,000. This transaction would be recorded in the ledger as:
A.
a debit to cash and land and a credit to share capital.
B.
a credit to cash and land and a debit to share capital.
C.
an increase to cash and land and a decrease to share capital.
D.
a decrease to cash, and an increase to land and share capital.
11. If an entity paid $200 for two months rent in advance on 1 June and recorded it all as rent expense
on that date, which of the following would be the necessary adjusting entry at 30 June?
A. Debit rent expense $100 and credit prepaid rent $100
B. Debit prepaid rent $100 and credit rent expense $100
C. Debit rent expense $200 and credit prepaid rent $200
D. Debit prepaid rent $200 and credit rent expense $200
12. If an entity paid $200 for two months rent in advance on 1 June and recorded it all as prepaid rent
on that date, which of the following would be the necessary adjusting entry at 30 June?
A. Debit rent expense $100 and credit prepaid rent $100
B. Debit prepaid rent $100 and credit rent expense $100
C. Debit rent expense $200 and credit prepaid rent $200
D. Debit prepaid rent $200 and credit rent expense $200
ANS: A PTS: 1 AACSB: Knowledge, Analytical
13. The balance sheet lists final account balances for which of the following elements of financial
statements?
A. Assets and liabilities.
B. Income and expenses.
C. Assets, liabilities and owner’s equity.
D. Income, expenses and profit and loss.
14. Income and expenses affect the profits made by an entity. Which of the following statements best
describes how this fact is consistent with the accounting equation and the debit and credit rule?
A. Income increases equity and so should be a debit and expenses decrease equity and so should
be a credit
B. Income increases equity and so should be a credit and expenses decrease equity and so should
be a debit
C. Income decreases equity and so should be a debit and expenses increase equity and so should
be a credit
D. Income and expenses both affect equity and so both should be a credit if they are increasing
15. XYZ receives $1000 in June for rent from a client for the month of July. How should this be
recorded by XYZ assuming a balance date of 30 June?
A. Debit cash $1000 and credit accounts receivable $1000
B. Debit cash $1000 and credit unearned revenue $1000
C. Debit unearned revenue $1000 and credit cash $1000
D. Debit cash $1000 and credit prepaid rent $1000
SHORT ANSWER
1. Discuss the role that journals, the ledger, debits and credits and the trial balance play in the
traditional approach to recording transactions (events).
PROBLEM
1. The following transactions relate to Murali Traders for the year ended 30 June 20X7 – the first
year of operation.
a.
The owner invested $10,000 into a business bank account.
b.
Purchased equipment for $6000 cash.
d.
Purchased inventory for $45,000 on credit, of which $39,000 had been paid for at
year end.
d.
Sold goods for $69,000 on credit. The balance outstanding at the year-end was
$4000; the balance was received in cash.
e.
Paid operating expenses $3000.
f.
The balance of closing inventory at year end was valued at $4000 cost.
(a)
Record the foregoing transactions using the traditional T accounts.
(b)
Extract a trial balance at 30 June 20X7.
Transaction a
Transaction b
Transaction a
Transaction b
Transaction c
Transaction f
Transaction c
Transaction c
Balance c/d
2. Prepare general journal entries for the following independent events.
(i)
Issued 50,000 ordinary shares at a $1.20 issue price in exchange for land whose
fair value was equal to value of the shares.
(ii)
Issued $10,000,000 5% debentures at par and for cash.
(iii)
Paid a $120,000 cash dividend on ordinary shares.
(iv)
Sold goods for $50,000 cash.
(v)
Purchased inventory for $45,000 on credit.