Bookkeeping & General Ledger Flashcards

Which of the following is an example of a reversing entry?

Answer: Reversing an accrued expense entry at the start of the next period

Reversing entries are made at the beginning of a new period to cancel out accruals recorded in the prior period, simplifying subsequent cash entries.

In a perpetual inventory system, when merchandise is sold, the bookkeeper records:

Answer: Both a sales entry and a cost of goods sold entry simultaneously

A perpetual system updates inventory and records cost of goods sold at each sale, unlike the periodic system which updates only at period-end.

What does a credit balance in Accounts Receivable typically indicate?

Answer: An overpayment or advance payment by the customer

A credit balance in Accounts Receivable usually means a customer has overpaid or paid in advance, creating a liability to the company.

Bank reconciliation adjustments for deposits in transit should be:

Answer: Added to the bank statement balance

Deposits in transit have been recorded in the books but not yet processed by the bank, so they are added to the bank statement balance.

Which of the following accounts is NOT closed at the end of the accounting period?

Answer: Prepaid Insurance

Prepaid Insurance is a permanent (real) asset account that carries its balance forward to the next period and is not closed.

The double-entry bookkeeping principle requires that:

Answer: Every transaction affects at least two accounts keeping the equation balanced

Double-entry bookkeeping records each transaction in two or more accounts so that total debits always equal total credits.

A purchase return of $200 merchandise (originally bought on credit) is recorded as:

Answer: Debit Accounts Payable $200, Credit Purchases Returns & Allowances $200

Returning goods purchased on credit reduces the liability (debit Accounts Payable) and records the reduction in net purchases (credit Purchase Returns & Allowances).