Hancock9e Testbank ch11

Chapter 11 – Worksheet to debits and credits
TRUE/FALSE
1. An increase in assets and an increase in liabilities is the same as saying assets have been
debited and liabilities have been credited.
ANS: T PTS: 1 AACSB: Knowledge, Analytical

TOP: The traditional approach.
2. The worksheet approach and the T account approach to recording transactions are not really
comparable, as the worksheet approach uses increases and decreases whereas the T account approach
uses debits and credits.

3. The owner of an entity pays cash into the company’s cash at bank account. The effect of this is
to record an increase to cash on the left-hand side of the worksheet and an increase to equity on the
right-hand side of the worksheet. This is the same as recording a debit on the left-hand side of the T
account Cash at Bank and a credit on the right-hand side of the T account Owners’ Equity.

4. When using an extended trial balance approach to recording end-of-period adjustments, there
is a risk of errors and omissions as this approach will only result in the recording of one side of the
transaction.
ANS: F PTS: 1 AACSB: Knowledge, Analytical

5. Increases in assets involve debits and increases to equity and liabilities involve credits under a
ledger-based approach to recording transactions.

6. A trial balance is prepared to check on the arithmetical accuracy of the ledger.

7. Decreases in assets are credited, and increases in liabilities are debited.
ANS: F PTS: 1 AACSB: Knowledge, Analytical

8. An accounting journal is a book of original entry that is prepared to record transactions in

chronological order.

9. The recording of transactions in the worksheet and ledger both revolve around the principle of
duality and the accounting equation.

MULTIPLE CHOICE
1. Which of the following statements about double-entry bookkeeping is true?

A. The double-entry principle is referred to as accrual accounting.
B. For each transaction or economic event the total amount debited must equal the total
amount credited.
C. If one account is increased, then another account must be decreased.
D. The total number of accounts debited must equal the total number of accounts credited.
ANS: B PTS: 1 AACSB: Knowledge, Analytical
2. Which of the following accounts normally has a debit balance?

A. Liabilities
B. Owners’ equity
C. Revenues
D. Expenses
ANS: D PTS: 1 AACSB: Knowledge, Analytical
3. Which of the following does not normally have a credit balance?

A. Asset
B. Liability
C. Equity
D. Revenue
ANS: A PTS: 1 AACSB: Knowledge, Analytical
4. As used in accounting, what do the terms ‘debit’ and ‘credit’ mean?

A. The bad and good things, respectively, that happen to a business
B. Increases and decreases, respectively
C. Left and right sides, respectively, of a T ledger account
D. First and second, respectively
ANS: C PTS: 1 AACSB: Knowledge, Analytical
5. Which of the following accounts would be increased by a debit entry?

A. Accounts receivable
B. Owners’ equity
C. Accounts payable
D. Sales
6. A credit entry is used to record increases to:

A. accounts receivable.
B. accounts payable.
C. wages expense.
D. cash.
7. The ledger accounts for accumulated depreciation and allowance for doubtful debts:
A. would normally hold credit balances.
B. would normally hold debit balances.
C. represent expenses.
D. represent liabilities.
8. The recording of transactions in the ledger always involves:

A. same number of debit and credit entries.
B. same dollar amounts of debits and credits.
C. the original recording of the transaction.
D. plenty of work for accountants.
9. An accounting journal:
A. is an original book of entry in accounting records.
B. records transactions on a chronological basis.
C. provides the information for recording in the ledger.
D. all of the above.
ANS: D PTS: 1 AACSB: Knowledge, Analytical
10. On 1 August XYZ Ltd issued $240 000 shares to shareholders in exchange for cash of $100
000 and land of $140 000. This transaction would be recorded in the general ledger as:
A. a debit to cash and land and a credit to share capital.
B. a credit to cash and land and a debit to share capital.
C. an increase to cash and land and a decrease to share capital.
D. a decrease to cash, and an increase to land and share capital.
11. If an entity paid $200 for two months’ rent in advance on 1 June and recorded it all as rent
expense on that date, which of the following would be the necessary adjusting entry at 30 June?
A. Debit rent expense $100 and credit prepaid rent $100
B. Debit prepaid rent $100 and credit rent expense $100
C. Debit rent expense $200 and credit prepaid rent $200
D. Debit prepaid rent $200 and credit rent expense $200

12. If an entity paid $200 for two months’ rent in advance on 1 June and recorded it all as prepaid
rent on that date, which of the following would be the necessary adjusting entry at 30 June?
A. Debit rent expense $100 and credit prepaid rent $100
B. Debit prepaid rent $100 and credit rent expense $100
C. Debit rent expense $200 and credit prepaid rent $200
D. Debit prepaid rent $200 and credit rent expense $200
13. The balance sheet lists final account balances for which of the following elements of financial
statements?
A. Assets and liabilities
B. Income and expenses
C. Assets, liabilities and owners’ equity
D. Income, expenses and profit and loss
ANS: C PTS: 1 AACSB: Knowledge, Analytical
TOP: Final accounts.
14. Income and expenses affect the profits made by an entity. Which of the following statements
best describes how this fact is consistent with the accounting equation and the debit and credit rule?
A. Income increases equity and so should be a debit and expenses decrease equity and so should be a
credit.
B. Income increases equity and so should be a credit and expenses decrease equity and so should be a
debit.
C. Income decreases equity and so should be a debit and expenses increase equity and so should be a
credit.
D. Income and expenses both affect equity and so both should be a credit if they are increasing.

15. XYZ receives $1000 in June for rent from a client for the month of July. How should this be
recorded by XYZ assuming a balance date of 30 June?
A. Debit cash $1000 and credit accounts receivable $1000
B. Debit cash $1000 and credit unearned revenue $1000
C. Debit unearned revenue $1000 and credit cash $1000
D. Debit cash $1000 and credit prepaid rent $1000

SHORT ANSWER
1. Discuss the role that journals, the ledger, debits and credits and the trial balance play in the
traditional approach to recording transactions (events).
ANS:
The journals and ledger play an important part in the process (system) of recording and classifying the
economic events associated with the operations of an entity. The journals precede the ledger in that
process and provide a chronological summary of the economic events. The information contained in
journals is entered into the ledger, which is structured around the accounting equation. The double-
sided nature of the accounting equation is also reflected in the ledger, with assets being recorded on the
left-hand (debit) side of the ledger, and liabilities and equity on the right-hand (credit) side of the
ledger. A trial balance provides a summary of the ledger account balances at a point in time, and is
undertaken to assess the arithmetical accuracy of the ledger – accounting equation at that time.
PTS: 1 AACSB: Knowledge, Analytical, Communication
PROBLEM
1. The following transactions relate to Murali Traders for the year ended 30 June – the first year
of operation.
a. The owner invested $10 000 into a business bank account.
b. Purchased equipment for $6000 cash.
d. Purchased inventory for $45 000 on credit, of which $39 000 had been paid for at
year end.
d. Sold goods for $65 000 on credit. The balance outstanding at the year-end was
$4000; the balance was received in cash.
e. Paid operating expenses $3000.
f. The balance of closing inventory at year end was valued at $4000 cost.
(a) Record the foregoing transactions using the traditional T accounts.

(b) Extract a trial balance at 30 June.
ANS:
(a)
Cash
Details Debit Details Credit
Transaction a 10 000 Transaction b 6000
Transaction d 61 000 Transaction c 39 000
Transaction e 3000
Balance c/d 23 000
71 000 71 000
Balance b/d 23 000
Capital
Transaction a 10 000
Equipment
Transaction b 6000
Inventory
Transaction c 45 000 Transaction f 41 000
Balance c/d 4000
45 000 45 000
Balance b/d 4000
Accounts payable
Transaction c 39 000 Transaction c 45 000
Balance c/d 6000
45 000 45 000
Balance b/d 6000
Accounts receivable
Transaction d 65 000 Transaction d 61 000
Balance c/d 4000
65 000 65 000
Balance b/d 4000
Profit and loss Summary

Transaction e 3000 Transaction d 65 000
Transaction f 41 000
Balance c/d 21 000
65 000 65 000
Balance b/d 21 000
(b)
Trial balance as at 30 June 20X7
Debit Credit
Cash 23 000
Capital 10 000
Equipment 6000
Inventory 4000
Accounts payable 6000
Accounts receivable 4000
Profit and loss 21 000
37 000 37 000
PTS: 1 AACSB: A
2. Prepare general journal entries for the following independent events.

(i) Issued 50 000 ordinary shares at a $1.20 issue price in exchange for land whose
fair value was equal to value of the shares.
(ii) Issued $10 000 000 5% debentures at par and for cash.
(iii) Paid a $120 000 cash dividend on ordinary shares.
(iv) Sold goods for $50 000 cash.
(v) Purchased inventory for $45 000 on credit.
ANS:
(i) Dr Land 60 000
Cr Paid-up capital 60 000
(ii) Dr Cash 10 000 000

Cr Debentures 10 000 000
(iii) Dr Ordinary dividend paid 120 000
Cr Cash 120 000
(iv) Dr Cash 50 000

Cr Sales (profit & loss) 50 000
(v) Dr Inventory 45 000

Cr Accounts payable 45 000
PTS: 1 AACSB: Knowledge, Analytical


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Chapter 11 – Worksheet to debits and credits

ANS: T PTS: 1 AACSB: Knowledge, Analytical

ANS: T PTS: 1 AACSB: Knowledge, Analytical

ANS: T PTS: 1 AACSB: Knowledge, Analytical

ANS: F PTS: 1 AACSB: Knowledge, Analytical

ANS: T PTS: 1 AACSB: Knowledge, Analytical

6. A trial balance is prepared to check on the arithmetical accuracy of the ledger.

ANS: T PTS: 1 AACSB: Knowledge, Analytical

7. Decreases in assets are credited, and increases in liabilities are debited.

ANS: F PTS: 1 AACSB: Knowledge, Analytical

8. An accounting journal is a book of original entry that is prepared to record transactions in

ANS: T PTS: 1 AACSB: Knowledge, Analytical

ANS: T PTS: 1 AACSB: Knowledge, Analytical

1. Which of the following statements about double-entry bookkeeping is true?

2. Which of the following accounts normally has a debit balance?

3. Which of the following does not normally have a credit balance?

4. As used in accounting, what do the terms ‘debit’ and ‘credit’ mean?

5. Which of the following accounts would be increased by a debit entry?

6. A credit entry is used to record increases to:

8. The recording of transactions in the ledger always involves:

ANS: B PTS: 1 AACSB: Knowledge, Analytical

ANS: B PTS: 1 AACSB: Knowledge, Analytical

ANS: B PTS: 1 AACSB: Knowledge, Analytical

(a) Record the foregoing transactions using the traditional T accounts.

Profit and loss Summary

2. Prepare general journal entries for the following independent events.

(ii) Dr Cash 10 000 000

(iv) Dr Cash 50 000

(v) Dr Inventory 45 000

PTS: 1 AACSB: Knowledge, Analytical

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