HBX Core Harvard Business School

Which of the following accounts is increased by a credit? Inventory Cost of Goods Sold (COGS) Cash

Deferred Revenue (Deferred Revenue is a liability account, and liabilities increase with a credit.)

Which of the following accounts increase with a debit? Select all that apply. Sales Revenue Deferred Revenue

Cash is an asset account and therefore increases with a debit and decreases with a credit. Depreciation Expense is an expense account and therefore increases with a debit and decreases with a credit. Prepaid Rent is an asset account and therefore increases with a debit and decreases with a credit.

Which of the following is an expense account? Select all that apply. Cost of Goods Sold Prepaid Expense Wages Payable

Cost of Goods Sold (Cost of Goods Sold is an expense account.) Rent Expense (Rent Expense is an expense account.) Wages Expense (Wages Expense is an expense account.)

Which of the following accounts decreases with a credit? Select all that apply. Accrued Wages Sales Preferred Stock

Cost of Goods Sold is an expense account and therefore increases with a debit and decreases with a credit. Accounts Receivable is an asset account and therefore increases with a debit and decreases with a credit. Cash is an asset account and therefore increases with a debit and decreases with a credit.

(asset) CASH decreases with a

Credit

(asset) PROPERTY, PLANT & EQUIPMENT decreases with a

Credit

(liability) ACCOUNTS PAYABLE increases with a

Credit

(liability) LONG TERM DEBT increases with a

Credit

(liability) WAGES PAYABLE increases with a

Credit

(owners equity) RETAINED EARNINGS increases with a

Credit

NOTES RECEIVABLE increases with a

Credit

PROPERTY, PLANT & EQUIPMENT decreases with a

Credit

RETAINED EARNINGS increases with a

Credit

Wise Guys Consulting receives payment in full totaling $9,000 from a client for services which were rendered and invoiced the previous month. What would be the impact at the time the payment is received?

DEBIT Cash (an asset) for $9,000 as the company now has the cash and CREDIT Accounts Receivable (also an asset) for $9,000 as the company no longer has the right to receive cash.

Cakery Bakery received $1,000 from a customer on August 5, 2016 for a wedding cake to be delivered on September 19, 2016. What would Cakery Bakery record on their books when the cake is successfully delivered?

DEBIT Deferred Revenue (a liability) for $1,000 as the company no longer has an obligation to provide services and CREDIT Revenue (part of owners' equity) for $1,000 to recognize the revenue associated with the sale.

(asset) NOTES RECEIVABLE increases with a

Debit

(owners equity) COMMON STOCK decreases with a

Debit

On June 1, 2013 Cardullo's purchased a case of Vermeiren Cookie Spread as inventory from its supplier for $200 and paid in cash.

Debit Inventory for $200 Credit Cash for $200

Suppose your company receives a large order from your best customer. Should this be treated as revenue and recorded on your company's books?

No, Because revenue is not considered earned until a product or service is delivered.

Which of the following accounts is decreased by a debit? Select all that apply. Sales Revenue Rent Expense Deferred Revenue Interest Expense Prepaid Rent

Sales Revenue (Sales Revenue is a revenue account as part of owners' equity and therefore increases with a credit and decreases with a debit.) Deferred Revenue (Deferred Revenue is a liability account and therefore increases with a credit and decreases with a debit.)

Traxx is a shoe manufacturer. They sold 250 pairs of shoes on credit to Feet of Endurance (FOE) for $16,000. The total manufactured cost of the shoes was $7,000. What is the journal entry to record the revenue on the books of Traxx?

The correct answer is to DEBIT Accounts Receivable for $16,000 as the company now has the right to receive cash and CREDIT Revenue for $16,000 to recognize the revenue associated with the sale.

Traxx is a shoe manufacturer. They sold 250 pairs of shoes on credit to Feet of Endurance (FOE) for $16,000. The total manufactured cost of the shoes was $7,000. What is the journal entry to record the cost of the inventory transfer on the books of Traxx?

The correct answer is to DEBIT Cost of Goods Sold for $7,000 to recognize the expense associated with the sale of shoes, and CREDIT Inventory for $7,000 as the company no longer has the inventory.

Keep You in the Know (KYK) magazine received $120,000 cash in annual subscriptions in December 2013. KYK is a monthly publication and all of these subscriptions commence in January 2014. What entry should KYK make on January 31, 2014 related to the subscription services provided for one month?

The correct answer is to DEBIT Deferred Revenue for $10,000 as the company no longer has the liability for one month's worth of subscription, and CREDIT Revenue for $10,000 to recognize the revenue associated with one month's worth of services provided.

Curls Just Want to Have Fun, a small salon, purchased 200 wigs from their supplier for $25,000 and paid by check. What entry should the salon make to record this purchase?

The correct answer is to DEBIT Inventory for $25,000 as the company now has the inventory (the wigs), and CREDIT Cash for $25,000 as the company paid with cash (remember checks are considered cash in accounting terms).

Wise Guys Consulting issues an invoice for $9,000 to one of their clients for services provided. The terms of the invoice call for payment 30 days after the invoice date. What would be the impact at the date the services are completed and invoiced?

The correct answer is to debit Accounts Receivable (an asset) for $9,000 as the company now has the right to receive cash, and credit Revenue (part of owners' equity) for $9,000 to recognize the revenue associated with the sale.

Which of the following is FALSE regarding Accrual Accounting? Revenues are recorded when earned Accrual accounting follows the matching principle Expenses are recorded as incurred

Transactions are only recorded when there is an exchange of cash (This is true for Cash Basis Accounting, but not for Accrual Accounting.)

Cakery Bakery receives $1,000 from a customer on August 5, 2016 for a wedding cake to be delivered on September 19, 2016. What would Cakery Bakery record on their books when they receive this payment?

The correct answer is to debit Cash (an asset) for $1,000 as the company now has the cash and credit Deferred Revenue (a liability) for $1,000 as the company now has an obligation to provide services in the future.

Keep You in the Know (KYK) magazine received $120,000 cash in annual subscriptions in December 2013. KYK is a monthly publication and all of these subscriptions commence in January 2014. What entry should KYK make on December 31, 2013 to record the payments received for these subscriptions?

The correct answer is to debit Cash for $120,000 as the company now has the cash, and credit Deferred Revenue for $120,000 as the company now has the obligation to provide services in the future.

Like A Wrecking Ball is a demolition company. At the end of a project, they presented their client with an invoice for $18,000 and immediately received a check for the full amount. What is the journal entry to record this receipt?

The correct answer is to debit Cash for $18,000 as the company now has the cash (remember--checks are considered cash!) and credit Revenue for $18,000 to recognize the revenue associated with the services provided.

Friends International is an NGO that fosters greater cultural awareness and understanding by arranging for people of different backgrounds to spend time in other countries and cultures. On January 1, 2014 they purchase $80,000 of open airline tickets in advance that can be used for a variety of destinations because they need the flexibility and savings provided by such tickets. What entry should Friends International make to record this purchase?

The correct answer is to debit Prepaid Expense for $80,000 as the company now has the right to receive benefits from the prepaid tickets and credit Cash for $80,000 as the company no longer has the cash.

Dobby & Dumbledor's Candy Store (DDCS) receives 12 candy dispensers from Potter's Plastics to be installed for its grand opening on June 30. DDCS bought the dispensers for $2,000 each. DDCS is granted credit terms, which gives them 30 days to pay for the dispensers. What journal entry would be made at the time of the purchase?

The correct answer is to debit Property, Plant, & Equipment for $24,000 as the company now has the candy dispensers, and credit Accounts Payable for $24,000 as the company now has the obligation to pay.

Friends International is an NGO that fosters greater cultural awareness and understanding by arranging for people of different backgrounds to spend time in other countries and cultures. On January 1, 2014 they purchased $80,000 of open airline tickets in advance that can be used for a variety of destinations. Using the accrual method, build the entry to record the use of $40,000 of these tickets on March 15, 2014 for multiple passengers on a flight from New York to Kigali, Rwanda.

The correct answer is to debit Travel Expense for $40,000 to recognize the expense associated with the use of the tickets and credit Prepaid Expense for $40,000 as the company no longer has the right to receive benefits from the prepaid tickets.

Which of the following is TRUE regarding journal entries:

The total amount debited must equal the total amount credited