Double Entry Accounting Trivia Quiz

1. The normal balance of an asset is ____ while the normal balance of liability is ____

Debit, credit

Credit, credit

Debit, debit

Credit, debit

In accounting, the normal balance of an asset account is debit, meaning that an increase in assets is recorded as a debit entry. On the other hand, the normal balance of a liability account is credit, meaning that an increase in liabilities is recorded as a credit entry. This is because assets are resources owned by the company, and an increase in assets represents an inflow of resources, which is recorded as a debit. Liabilities, on the other hand, represent obligations or debts of the company, and an increase in liabilities represents an increase in the company's obligations, which is recorded as a credit.

Explanation

In accounting, the normal balance of an asset account is debit, meaning that an increase in assets is recorded as a debit entry. On the other hand, the normal balance of a liability account is credit, meaning that an increase in liabilities is recorded as a credit entry. This is because assets are resources owned by the company, and an increase in assets represents an inflow of resources, which is recorded as a debit. Liabilities, on the other hand, represent obligations or debts of the company, and an increase in liabilities represents an increase in the company's obligations, which is recorded as a credit.

2. When an account in the asset category is decreased, it is credited.

True

False

When an account in the asset category is decreased, it is credited because assets have a normal debit balance. In accounting, debits and credits are used to record transactions. When an asset account is decreased, it means that there has been an outflow or reduction of assets. To record this decrease, a credit entry is made to the asset account, which helps maintain the balance in the accounting equation. Therefore, the statement "When an account in the asset category is decreased, it is credited" is true.

Explanation

When an account in the asset category is decreased, it is credited because assets have a normal debit balance. In accounting, debits and credits are used to record transactions. When an asset account is decreased, it means that there has been an outflow or reduction of assets. To record this decrease, a credit entry is made to the asset account, which helps maintain the balance in the accounting equation. Therefore, the statement "When an account in the asset category is decreased, it is credited" is true.

3. Which one of the following categories of account is debited when it is decreased?

Liabilities

Expenses

Purchases

Expenses

Liabilities are accounts that represent what a company owes to its creditors or other entities. When a liability decreases, it means that the company has paid off a portion of its debt or obligation. Therefore, the category of account that is debited when liabilities decrease is Liabilities.

Explanation

Liabilities are accounts that represent what a company owes to its creditors or other entities. When a liability decreases, it means that the company has paid off a portion of its debt or obligation. Therefore, the category of account that is debited when liabilities decrease is Liabilities.

4. Which category of accounts is credited at the time it is increased?

Revenue

Purchases

Asset

Expenses

Revenue is the category of accounts that is credited at the time it is increased. This is because revenue represents the income earned by a company from its normal business operations. When revenue increases, it is recorded as a credit entry in the accounting books to reflect the increase in the company's overall income.

Explanation

Revenue is the category of accounts that is credited at the time it is increased. This is because revenue represents the income earned by a company from its normal business operations. When revenue increases, it is recorded as a credit entry in the accounting books to reflect the increase in the company's overall income.

5. What does a creditor account of RM 8,500 in the double-entry system represent?

An item of income to the business.

An asset of the business.

An expense of the business.

Liability of the business.

In the double-entry system, a creditor account of RM 8,500 represents a liability of the business. This means that the business owes this amount to a creditor. A liability is an obligation or debt that a business has to pay in the future. In this case, the business has incurred a debt of RM 8,500 to a creditor, which is recorded in the creditor account as a liability.

Explanation

In the double-entry system, a creditor account of RM 8,500 represents a liability of the business. This means that the business owes this amount to a creditor. A liability is an obligation or debt that a business has to pay in the future. In this case, the business has incurred a debt of RM 8,500 to a creditor, which is recorded in the creditor account as a liability.

6. Which one of the following categories of account is debited when it is increased?

Revenue

Purchases

Sources of fund

Liability

When purchases increase, the category of account that is debited is also purchases. This is because purchases are considered an expense for a business. When a business buys goods or services for resale, the purchases account is debited to reflect the increase in expenses. This helps in accurately tracking and recording the cost of goods sold and maintaining the financial records of the business.

Explanation

When purchases increase, the category of account that is debited is also purchases. This is because purchases are considered an expense for a business. When a business buys goods or services for resale, the purchases account is debited to reflect the increase in expenses. This helps in accurately tracking and recording the cost of goods sold and maintaining the financial records of the business.

7. Which of the following statements about double-entry accounting is incorrect?

Every transaction affects at least two accounts.

Debits always increase an account balance, while credits always decrease it.

The accounting equation (Assets = Liabilities + Equity) must always be in balance.

Double-entry bookkeeping helps in detecting errors and preventing fraud.

While it's true that debits increase asset and expense accounts, they decrease liability, equity, and revenue accounts. Conversely, credits increase liability, equity, and revenue accounts but decrease asset and expense accounts. The fundamental rule is that for every debit, there must be a corresponding credit, ensuring the accounting equation remains balanced.

Explanation

While it's true that debits increase asset and expense accounts, they decrease liability, equity, and revenue accounts. Conversely, credits increase liability, equity, and revenue accounts but decrease asset and expense accounts. The fundamental rule is that for every debit, there must be a corresponding credit, ensuring the accounting equation remains balanced.

8. Purchase a van and pay by cheque. Debit _______ account, credit bank account.

Vehicle

Asset

Loan

None of these

When purchasing a van and paying by cheque, the transaction involves debiting the Vehicle account and crediting the bank account. This is because the van is considered an asset, and debiting the Vehicle account increases the value of the asset. At the same time, the bank account is being credited as the payment is being made from the bank. Therefore, the correct answer is Vehicle.

Explanation

When purchasing a van and paying by cheque, the transaction involves debiting the Vehicle account and crediting the bank account. This is because the van is considered an asset, and debiting the Vehicle account increases the value of the asset. At the same time, the bank account is being credited as the payment is being made from the bank. Therefore, the correct answer is Vehicle.

9. The liabilities increase by RM7000. How is the accounting equation affected?

Assets must have increased by RM 7000, or equity must have decreased by RM 7000

Assets must have decreased by RM 7000

Assets and equity must have each decreased by RM 3,500

Owners equity must have increased by RM 7000.

The accounting equation states that Assets = Liabilities + Equity. If the liabilities increase by RM7000, the equation must still balance. Therefore, either the Assets must have increased by RM7000 to maintain the balance, or the equity must have decreased by RM7000 to offset the increase in liabilities.

Explanation

The accounting equation states that Assets = Liabilities + Equity. If the liabilities increase by RM7000, the equation must still balance. Therefore, either the Assets must have increased by RM7000 to maintain the balance, or the equity must have decreased by RM7000 to offset the increase in liabilities.

10. Double-entry accounting reflects:

The accruals concept

The duality concept.

The matching concept.

The prudence concept.

The duality concept is reflected in double-entry accounting. This concept states that every transaction has two aspects - a debit and a credit. In other words, for every debit entry, there must be a corresponding credit entry of equal value. This ensures that the accounting equation (assets = liabilities + equity) remains in balance. Double-entry accounting is based on this principle and helps maintain accurate and complete financial records by recording both the giving and receiving aspects of each transaction.

Explanation

The duality concept is reflected in double-entry accounting. This concept states that every transaction has two aspects - a debit and a credit. In other words, for every debit entry, there must be a corresponding credit entry of equal value. This ensures that the accounting equation (assets = liabilities + equity) remains in balance. Double-entry accounting is based on this principle and helps maintain accurate and complete financial records by recording both the giving and receiving aspects of each transaction.