CPB / BookKeeping Double Entry Bookkeeping 4 — Questions and Answers
Question 1: A note payable of $5,000 is issued in exchange for equipment. This transaction affects:
- Two asset accounts only
- An asset and a liability account (Correct answer)
- A liability and an expense account
- An asset and an equity account
Correct answer: An asset and a liability account
Issuing a note to acquire equipment increases an asset (Equipment) and increases a liability (Notes Payable).
Question 2: Which bookkeeping error would still result in a balanced trial balance?
- Debiting the wrong account for the right amount (Correct answer)
- Posting only the debit side of an entry
- Recording a debit as a credit
- Omitting an entire journal entry
Correct answer: Debiting the wrong account for the right amount
Debiting the wrong account for the correct amount is an error of commission that keeps the trial balance balanced because total debits still equal total credits.
Question 3: The process of transferring journal entry amounts to the appropriate ledger accounts is called:
- Journalizing
- Adjusting
- Posting (Correct answer)
- Closing
Correct answer: Posting
Posting is the step in the accounting cycle where amounts from the general journal are transferred to the individual ledger accounts.
Question 4: If a company collects $900 on an account receivable previously recorded, the entry is:
- Debit Cash, Credit Revenue
- Debit Accounts Receivable, Credit Cash
- Debit Cash, Credit Accounts Receivable (Correct answer)
- Debit Revenue, Credit Cash
Correct answer: Debit Cash, Credit Accounts Receivable
Collecting a receivable increases Cash (debit) and decreases Accounts Receivable (credit); no new revenue is recognized.
Question 5: Under double entry bookkeeping, every journal entry must have:
- At least one debit and at least one credit (Correct answer)
- Exactly one debit and one credit
- Equal numbers of debit and credit entries
- A debit and credit in the same account
Correct answer: At least one debit and at least one credit
Every journal entry must have at least one debit and at least one credit, but compound entries can have multiple debits or credits as long as totals are equal.
Question 6: Which type of account is closed at the end of the accounting period?
- Asset accounts
- Liability accounts
- Temporary accounts (revenues, expenses, drawings) (Correct answer)
- Permanent accounts
Correct answer: Temporary accounts (revenues, expenses, drawings)
Temporary accounts—revenues, expenses, and drawings—are closed to retained earnings or owner's equity at period end to start the new period with zero balances.
Question 7: A business pays $240 cash for a 12-month insurance policy. The initial entry records:
- Debit Insurance Expense $240, Credit Cash $240
- Debit Prepaid Insurance $240, Credit Cash $240 (Correct answer)
- Debit Cash $240, Credit Prepaid Insurance $240
- Debit Prepaid Insurance $240, Credit Accounts Payable $240
Correct answer: Debit Prepaid Insurance $240, Credit Cash $240
Paying for a future benefit creates an asset (Prepaid Insurance debit) rather than an immediate expense, because coverage extends beyond the current period.
CPB / BookKeeping Double Entry Bookkeeping 4
A note payable of $5,000 is issued in exchange for equipment.
This transaction affects: