Recording

Recording Business
Business Transactions
Transactions

Chapter 2

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A chronological record of transactions is called
1. a journal.
2. a balance sheet.
3. a general ledger.
4. a trial balance.

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Answer: 1
The journal is also called the book of original entry
and is a chronological record of transactions.

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A list of all accounts used by a business and their
balances at a given time is called
1. a journal.
2. a balance sheet.
3. an income statement.
4. a trial balance.

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Answer: 4
A trial balance, normally prepared at the end of an
accounting period, lists all the accounts and their
debit or credit balances. The columns are totaled
to prove total debits are equal to total credits.

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When recording a transaction in the general
journal
1. there can only be two accounts affected.
2. the amount of the debits must equal the
amount of the credits.
3. the number of debit accounts must equal the
number of credit accounts.
4. at least one account from both sides of the
accounting equation must be affected.

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Answer: 2
In any journal entry there will be at least two
accounts affected (there could be more), and total
debit amounts must equal total credit amounts.

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Which sequence correctly summarizes the
accounting process?
1. Prepare a trial balance, journalize transactions, post to
accounts
2. Post to accounts, journalize transactions, prepare a trial
balance
3. Journalize transactions, post to accounts, prepare a
trial balance
4. Journalize transactions, prepare a trial balance, post to
accounts

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Answer: 3
Transactions are first journalized in the journal,
then posted to the ledger accounts. Once their
balances are determined, a trial balance is
prepared to ensure that debits equal credits.

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The left side of a T-account is used to record
1. Debits
2. Credits
3. Increases
4. Decreases

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Answer: 1
Debits are recorded on the left side of a T-account
and credits are recorded on the right side of a T-
account. Whether an account is increased or
decreased with a debit, depends on what type of
account it is.

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Which type of account is inventory?
1. Asset
2. Liability
3. Owner’s equity
4. Expense

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Answer: 1
Inventory is an asset. It is an economic resource
that will benefit the company in the future when it
is sold.

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In a journal entry, is an increase in Cash a debit or
a credit?
1. Debit
2. Credit

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Answer: 1
Cash is an asset. Assets are increased with
debits.

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In a journal entry, is an increase in Accounts
Payable a debit or a credit?
1. Debit
2. Credit

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Answer: 2
Accounts Payable is a liability. Liabilities are
increased with credits.

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In a journal entry, is an increase in the owner’s
capital a debit or a credit?
1. Debit
2. Credit

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Answer: 2
Capital is an owner’s equity account. Owner’s
equity is increased with a credit.

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In a journal entry, is an increase in Rent Expense
a debit or a credit?
1. Debit
2. Credit

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Answer: 1
Increase expense accounts with a debit.

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In a journal entry, is an increase in Fees Earned a
debit or a credit?
1. Debit
2. Credit

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Answer: 2
Fees earned is a revenue account. Revenues are
increased with credits.

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 Cash Accounts Receivable Fees Earned
Bal 400 Bal 200

Transactions:
Oct. 10 – Earned $300 revenue on account
Oct. 20 – Received $100 as payment on account
Oct. 30 – Earned $200 in cash

On October 31, what is the Cash balance?

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Answer: $700 ($400 + $100 + $200)

Cash Accounts Receivable Fees Earned

Bal 400 Bal 200
100 300 100 300
200 200
Bal 700

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 Cash Accounts Receivable Fees Earned
Bal 400 Bal 200

Transactions:
Oct. 10 – Earned $300 revenue on account
Oct. 20 – Received $100 as payment on account
Oct. 30 – Earned $200 in cash

On Oct 31, what is the Accounts Receivable balance?

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Answer: $400 ($200 + $300 - $100)

Cash Accounts Receivable Fees Earned

Bal 400 Bal 200
100 300 100 300
200 200
Bal 700 Bal 400

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 28
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