CPB / BookKeeping Journalizing and Posting Transactions 3 — Questions and Answers
Question 1: When posting to the general ledger, the journal page number is recorded in the ledger's posting reference column primarily to:
- Indicate the account balance
- Allow tracing back to the original journal entry (Correct answer)
- Show the transaction date
- Record the name of the preparer
Correct answer: Allow tracing back to the original journal entry
The journal page reference in the ledger allows an auditor or bookkeeper to trace any ledger entry back to the original journal entry.
Question 2: A business pays $1,200 for six months of prepaid insurance. The correct journal entry is:
- Debit Insurance Expense $1,200, Credit Cash $1,200
- Debit Prepaid Insurance $1,200, Credit Cash $1,200 (Correct answer)
- Debit Cash $1,200, Credit Prepaid Insurance $1,200
- Debit Prepaid Insurance $1,200, Credit Insurance Expense $1,200
Correct answer: Debit Prepaid Insurance $1,200, Credit Cash $1,200
Paying for insurance in advance creates an asset (Prepaid Insurance) that is debited, with Cash credited for the outflow.
Question 3: The normal balance of the Accounts Payable account is a:
- Debit, because it is decreased by payments
- Credit, because it is a liability account (Correct answer)
- Debit, because cash will be paid in the future
- Credit, because it represents an asset
Correct answer: Credit, because it is a liability account
Accounts Payable is a liability, and liabilities have normal credit balances that increase with credits.
Question 4: Which sequence correctly describes the accounting cycle flow for journalizing and posting?
- Post to ledger → Analyze transaction → Record in journal
- Analyze transaction → Record in journal → Post to ledger (Correct answer)
- Record in journal → Analyze transaction → Post to ledger
- Post to ledger → Record in journal → Analyze transaction
Correct answer: Analyze transaction → Record in journal → Post to ledger
The proper sequence is: analyze the transaction, record it in the journal, then post the entry to the appropriate ledger accounts.
Question 5: The owner withdraws $800 cash for personal use. Which account is debited?
- Cash
- Owner's Capital
- Drawing (Withdrawals) (Correct answer)
- Salary Expense
Correct answer: Drawing (Withdrawals)
Owner withdrawals are debited to the Drawing account, which is a contra-equity account that reduces owner's equity.
Question 6: A business performs services and receives $300 cash immediately. How is revenue recorded?
- Debit Service Revenue, Credit Cash
- Debit Cash, Credit Accounts Receivable
- Debit Cash, Credit Service Revenue (Correct answer)
- Debit Service Revenue, Credit Accounts Payable
Correct answer: Debit Cash, Credit Service Revenue
Cash received for services increases Cash (debit) and increases Service Revenue (credit), reflecting earned income.
Question 7: Which statement is TRUE about the chart of accounts?
- It lists every transaction recorded during the period
- It shows the balance of each account daily
- It assigns a number to each account used by the business (Correct answer)
- It replaces the general journal for small businesses
Correct answer: It assigns a number to each account used by the business
The chart of accounts is a numbered list of all accounts a business uses, providing a consistent reference for journalizing.
CPB / BookKeeping Journalizing and Posting Transactions 3
When posting to the general ledger, the journal page number is recorded in the ledger's posting reference column primarily to: