CPB / BookKeeping Double Entry Bookkeeping 5 — Questions and Answers
Question 1: Which of the following best describes a compound journal entry?
- An entry with debits exceeding credits
- An entry involving more than two accounts (Correct answer)
- An entry recorded in more than one journal
- An entry made only at year-end
Correct answer: An entry involving more than two accounts
A compound journal entry involves three or more accounts, with total debits still equaling total credits.
Question 2: On a balance sheet, which section lists accounts in order of liquidity?
- Long-term liabilities
- Current assets (Correct answer)
- Owner's equity
- Fixed assets
Correct answer: Current assets
Current assets are listed in order of liquidity—most liquid (cash) first—reflecting how quickly each asset can be converted to cash.
Question 3: When a business receives a $3,000 bank loan, the journal entry credits:
- Cash
- Loan Expense
- Notes Payable (Correct answer)
- Owner's Equity
Correct answer: Notes Payable
Borrowing money increases Cash (debit) and creates an obligation recorded as Notes Payable (credit).
Question 4: What does a credit balance in an Accounts Receivable account most likely indicate?
- Customers owe the company more than expected
- The company has overstated sales
- The company owes a customer a refund or credit (Correct answer)
- The account has been recorded incorrectly as an asset
Correct answer: The company owes a customer a refund or credit
A credit balance in Accounts Receivable typically means a customer has overpaid or a credit memo was issued, resulting in a refund owed to the customer.
Question 5: Which of the following correctly states the normal balance for each account type?
- Assets: Credit; Liabilities: Debit; Equity: Debit
- Assets: Debit; Liabilities: Credit; Equity: Credit (Correct answer)
- Assets: Debit; Liabilities: Debit; Equity: Credit
- Assets: Credit; Liabilities: Credit; Equity: Debit
Correct answer: Assets: Debit; Liabilities: Credit; Equity: Credit
Assets have a normal debit balance; liabilities and equity have normal credit balances, consistent with the accounting equation.
Question 6: A bookkeeper records a $500 purchase of inventory as $5,000. This is known as a(n):
- Error of omission
- Error of principle
- Error of original entry (transposition/slide) (Correct answer)
- Error of commission
Correct answer: Error of original entry (transposition/slide)
Recording an incorrect amount (e.g., $5,000 instead of $500) is an error of original entry, which will cause the trial balance to be out of balance if only one side is wrong.
Question 7: After closing entries, which accounts will show a zero balance?
- Cash, Accounts Receivable, and Inventory
- Revenue, Expenses, and Drawings (Correct answer)
- Accounts Payable, Notes Payable, and Loans
- Retained Earnings and Common Stock
Correct answer: Revenue, Expenses, and Drawings
Closing entries zero out revenue, expense, and drawing accounts so they can accumulate fresh data in the next accounting period.
CPB / BookKeeping Double Entry Bookkeeping 5
Which of the following best describes a compound journal entry?