Double Entry Bookkeeping Flashcards

A note payable of $5,000 is issued in exchange for equipment. This transaction affects:

Answer: An asset and a liability account

Issuing a note to acquire equipment increases an asset (Equipment) and increases a liability (Notes Payable).

Which bookkeeping error would still result in a balanced trial balance?

Answer: Debiting the wrong account for the right amount

Debiting the wrong account for the correct amount is an error of commission that keeps the trial balance balanced because total debits still equal total credits.

The process of transferring journal entry amounts to the appropriate ledger accounts is called:

Answer: Posting

Posting is the step in the accounting cycle where amounts from the general journal are transferred to the individual ledger accounts.

If a company collects $900 on an account receivable previously recorded, the entry is:

Answer: Debit Cash, Credit Accounts Receivable

Collecting a receivable increases Cash (debit) and decreases Accounts Receivable (credit); no new revenue is recognized.

Under double entry bookkeeping, every journal entry must have:

Answer: At least one debit and at least one credit

Every journal entry must have at least one debit and at least one credit, but compound entries can have multiple debits or credits as long as totals are equal.

Which type of account is closed at the end of the accounting period?

Answer: Temporary accounts (revenues, expenses, drawings)

Temporary accounts—revenues, expenses, and drawings—are closed to retained earnings or owner's equity at period end to start the new period with zero balances.

A business pays $240 cash for a 12-month insurance policy. The initial entry records:

Answer: Debit Prepaid Insurance $240, Credit Cash $240

Paying for a future benefit creates an asset (Prepaid Insurance debit) rather than an immediate expense, because coverage extends beyond the current period.