CPB / BookKeeping Bookkeeping Journal 2 — Questions and Answers
Question 1: A company purchases $3,000 of inventory on account. Which journal entry is correct?
- Debit Inventory $3,000; Credit Accounts Payable $3,000 (Correct answer)
- Debit Accounts Payable $3,000; Credit Inventory $3,000
- Debit Cash $3,000; Credit Inventory $3,000
- Debit Inventory $3,000; Credit Cash $3,000
Correct answer: Debit Inventory $3,000; Credit Accounts Payable $3,000
Purchasing inventory on account increases the asset Inventory (debit) and creates a liability Accounts Payable (credit).
Question 2: What is the purpose of a compound journal entry?
- To record a transaction involving more than two accounts (Correct answer)
- To correct a prior period error
- To record only cash transactions
- To summarize monthly totals
Correct answer: To record a transaction involving more than two accounts
A compound journal entry records a single transaction that affects more than two accounts while keeping debits equal to credits.
Question 3: Which journal would be used to record the return of merchandise previously purchased on credit?
- Purchases Returns and Allowances Journal (Correct answer)
- Sales Journal
- Cash Receipts Journal
- General Journal
Correct answer: Purchases Returns and Allowances Journal
Purchases returns and allowances have their own special journal to track reductions in amounts owed to suppliers.
Question 4: When a business pays its utility bill with a check, which journal records this transaction?
- Cash Disbursements Journal (Correct answer)
- Cash Receipts Journal
- Sales Journal
- Purchases Journal
Correct answer: Cash Disbursements Journal
The cash disbursements journal records all outgoing cash payments, including checks written for expenses.
Question 5: A journal entry shows a debit to Salaries Expense and a credit to Salaries Payable. What does this represent?
- Accrued salaries earned but not yet paid (Correct answer)
- Salaries paid in cash to employees
- Prepaid salary expense
- Reversal of a prior salary entry
Correct answer: Accrued salaries earned but not yet paid
Debiting Salaries Expense and crediting Salaries Payable records wages earned by employees that have not yet been paid in cash.
Question 6: In the general journal, what information is recorded in the 'Description' or 'Narration' column?
- A brief explanation of the transaction (Correct answer)
- The account balance after posting
- The ledger page number
- The transaction amount in words
Correct answer: A brief explanation of the transaction
The narration provides a brief explanation of the transaction to give context and aid future reference or auditing.
Question 7: Which entry records the owner withdrawing cash from the business for personal use?
- Debit Owner's Drawings; Credit Cash (Correct answer)
- Debit Cash; Credit Owner's Equity
- Debit Owner's Equity; Credit Revenue
- Debit Expense; Credit Cash
Correct answer: Debit Owner's Drawings; Credit Cash
Withdrawals reduce owner's equity through the Drawings account (debit) and reduce the Cash asset (credit).
CPB / BookKeeping Bookkeeping Journal 2
A company purchases $3,000 of inventory on account.
Which journal entry is correct?