Debits and Credits

Question 1

What are debits and credits?

Answer 1

Terms used by bookkeepers and accountants to record transactions in accounting records. Every transaction must be entered as a debit in one account and a credit in another.

This double-entry system ensures accuracy in financial statements.

Question 2

What is an account in accounting?

Answer 2

A record that sorts transactions to keep a company’s financial data organized. Accounts are identified and listed in the chart of accounts.

The chart of accounts may contain as few as thirty accounts or as many as thousands.

Question 3

List the order of accounts in the chart of accounts.

Answer 3

• Assets
• Liabilities
• Owner’s (Stockholders’) Equity
• Revenues or Income
• Expenses
• Gains
• Losses

Question 4

What is a double-entry accounting system?

Answer 4

An accounting system where every business transaction affects at least two accounts.

Transactions may involve more than two accounts.

Question 5

What does it mean to debit an account?

Answer 5

To enter an amount on the left side of the account.

Question 6

What does it mean to credit an account?

Answer 6

To enter an amount on the right side of an account.

Question 7

Which types of accounts are increased with a debit?

Answer 7

• Dividends (Draws)
• Expenses
• Assets
• Losses

Remember as D – E – A – L.

Question 8

Which types of accounts are increased with a credit?

Answer 8

• Gains
• Income
• Revenues
• Liabilities
• Stockholders’ (Owner’s) Equity

Remember as G – I – R – L – S.

Question 9

How do you decrease an asset account?

Answer 9

By crediting the account.

Question 10

What are T-accounts used for?

Answer 10

As a visual aid to see the effect of a transaction or journal entry on two or more accounts.

Question 11

What is a journal entry?

Answer 11

A record that lists the date, the account title(s) to be debited, and the corresponding amount(s), followed by the account title(s) to be credited and the corresponding amount(s).

Question 12

Fill in the blank: Whenever cash is received, _______ Cash.

Answer 12

debit

Question 13

What is the normal balance for asset accounts?

Answer 13

Debit

Question 14

What is the normal balance for liability accounts?

Answer 14

Credit

Question 15

What are contra accounts?

Answer 15

Accounts with balances that are opposite of the normal balance, such as contra revenue accounts which have debit balances.

Question 16

What happens to revenues and gains in accounting?

Answer 16

They are recorded in accounts that normally have credit balances and are increased with a credit entry.

Question 17

What is the normal balance for expense accounts?

Answer 17

Debit

Question 18

What are permanent accounts?

Answer 18

Accounts not closed at the end of the accounting year; their balances carry forward to the next year.

Question 19

What are temporary accounts?

Answer 19

Accounts that include revenue, expense, owner’s drawing, and income summary accounts, which have zero balances at the start of a new accounting year.

Question 20

True or False: A company’s cash account is always credited when cash is paid out.

Answer 20

True

Question 21

Fill in the blank: To increase an expense account, _______ the account.

Answer 21

debit

Question 22

What happens to temporary accounts at the end of the accounting year?

Answer 22

Each temporary account will have a zero balance when the next accounting year begins.

Question 23

What allows a company to report detailed information on revenues and expenses?

Answer 23

Having many revenue accounts and a huge number of expense accounts.

Question 24

In banking, what does it mean when your checking account is credited?

Answer 24

The transaction will increase your checking account balance.

Question 25

What happens to your checking account balance when your bank debits your account?

Answer 25

Your checking account balance decreases.

Question 26

True or False: Debiting the Cash account in the general ledger always increases its balance.

Answer 26

True.

Question 27

True or False: Crediting the Cash account in the general ledger always increases its balance.

Answer 27

False.

Question 28

What entry does Debris Disposal make when it receives $100 in cash from a customer?

Answer 28

Debit Cash $100, Credit Unearned Revenues $100.

Question 29

What is credited when Debris Disposal receives cash but has not yet earned it?

Answer 29

Unearned Revenues.

Question 30

When Trustworthy Bank receives a $100 deposit, what are the entries in its general ledger?

Answer 30

Debit Cash $100, Credit Customers’ Checking Accounts $100.

Question 31

What does a bank’s liability account reflect when it credits Customers’ Checking Accounts?

Answer 31

The bank’s obligation to return the money to the customer on demand.

Question 32

What entries does Debris Disposal make when it receives a $1,000 wire transfer?

Answer 32

Debit Cash $1,000, Credit Accounts Receivable $1,000.

Question 33

What happens when Trustworthy Bank charges Debris Disposal a monthly fee of $13?

Answer 33

Debit Customers’ Checking Accounts $13, Credit Service Charge Revenues $13.

Question 34

What is the impact on Debris Disposal’s records when a bank service charge is applied?

Answer 34

Debit Bank Service Charges Expense $13, Credit Cash $13.

Question 35

What types of accounts are reported as assets on a bank’s balance sheet?

Answer 35

Cash, Investment Securities, and Loans Receivable.

Question 36

What type of accounts are reported as liabilities on a bank’s balance sheet?

Answer 36

Customers’ bank accounts including checking and savings accounts.

Question 37

Define ‘Debit’ in accounting.

Answer 37

Means left.

Question 38

Define ‘Credit’ in accounting.

Answer 38

Means right.

Question 39

What must be true about the total amounts entered as debits and credits?

Answer 39

They must equal each other.

Question 40

To increase an asset, you should _______ the asset account.

Answer 40

Debit

Question 41

To increase a liability, you should _______ the liability account.

Answer 41

Credit

Question 42

To increase revenues, you should _______ the revenues account.

Answer 42

Credit

Question 43

What effect does a debit to an expense account have on owner’s equity?

Answer 43

Causes a decrease in owner’s equity.

Question 44

What should you do when seeking assistance with accounting and tax reporting complexities?

Answer 44

Consult with accounting and tax professionals.