CPB / BookKeeping Double Entry Bookkeeping 3 — Questions and Answers
Question 1: An owner withdraws $1,000 cash for personal use. How is this recorded?
- Debit Expense $1,000, Credit Cash $1,000
- Debit Drawing $1,000, Credit Cash $1,000 (Correct answer)
- Debit Cash $1,000, Credit Drawing $1,000
- Debit Revenue $1,000, Credit Cash $1,000
Correct answer: Debit Drawing $1,000, Credit Cash $1,000
Owner withdrawals are recorded as a debit to the Drawing (or Withdrawal) account and a credit to Cash.
Question 2: Which of the following is a contra account that normally carries a credit balance?
- Accounts Receivable
- Accumulated Depreciation (Correct answer)
- Prepaid Insurance
- Inventory
Correct answer: Accumulated Depreciation
Accumulated Depreciation is a contra asset account that carries a credit balance, offsetting the related asset's debit balance.
Question 3: A $400 utility bill is received but not yet paid. The adjusting entry is:
- Debit Utilities Payable, Credit Utilities Expense
- Debit Cash, Credit Utilities Expense
- Debit Utilities Expense, Credit Utilities Payable (Correct answer)
- Debit Utilities Expense, Credit Cash
Correct answer: Debit Utilities Expense, Credit Utilities Payable
An accrued expense is recorded by debiting the expense and crediting the corresponding payable liability.
Question 4: Which double entry is made when a business sells goods on credit for $750?
- Debit Cash $750, Credit Sales Revenue $750
- Debit Accounts Receivable $750, Credit Sales Revenue $750 (Correct answer)
- Debit Sales Revenue $750, Credit Accounts Receivable $750
- Debit Inventory $750, Credit Accounts Receivable $750
Correct answer: Debit Accounts Receivable $750, Credit Sales Revenue $750
A credit sale increases Accounts Receivable (debit) and increases Sales Revenue (credit).
Question 5: Depreciation expense of $600 is recorded for the year. The credit is made to:
- Cash
- Depreciation Expense
- Accumulated Depreciation (Correct answer)
- The asset's cost account directly
Correct answer: Accumulated Depreciation
Depreciation is recorded by debiting Depreciation Expense and crediting Accumulated Depreciation, not the asset account itself.
Question 6: What happens to the equity section of the balance sheet when a net loss is recorded?
- Equity increases
- Equity is unaffected
- Equity decreases (Correct answer)
- Liabilities increase to compensate
Correct answer: Equity decreases
A net loss reduces retained earnings (or owner's equity), decreasing the equity section of the balance sheet.
Question 7: Which pair of accounts is affected when prepaid insurance of $1,200 expires after one month ($100)?
- Insurance Expense and Cash
- Prepaid Insurance and Accounts Payable
- Insurance Expense and Prepaid Insurance (Correct answer)
- Cash and Insurance Payable
Correct answer: Insurance Expense and Prepaid Insurance
As prepaid insurance expires, Insurance Expense is debited and Prepaid Insurance is credited to recognize the cost used.
CPB / BookKeeping Double Entry Bookkeeping 3
An owner withdraws $1,000 cash for personal use.
How is this recorded?