Accounting chapter 3

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A T account has three parts: the title, the debit side, and the credit side.

T

A credit increases liabilities and owner's equity.

T

A trial balance is a list of all accounts showing the title and balance of each account.

T

A trial balance is taken periodically to check the equality of the debits and credits.

T

An account is a form or record used to keep track of the increases or decreases in the individual assets, liabilities, owner's equity, revenues, and expenses of a business entity.

T

An increase or decrease in any asset, liability, owner's equity, revenue, or expense is always accompanied by an offsetting change within the basic accounting elements.

T

Asset accounts normally have debit balances.

T

At least two accounts are affected by every transaction.

T

Craig deposits $6,000 in an account to start a new business. He should debit Cash and credit his capital account.

T

If services for the month total $3,300 in cash and $700 on account, Accounts Receivable increases $700.

T

If services for the month total $7,000 in cash and $1,500 on account, the revenue account increases $8,500.

T

Increases in owner's equity are entered as credits.

T

Jesse purchased a supply of computer printer cartridges to last for about three months; this transaction increased Supplies and decreased Cash.

T

John received $350 for delivery services; this transaction increased Cash and revenue.

T

Owner's equity includes four types of accounts: Owner's Capital, Revenues, Expenses, and Owner's Drawing.

T

Payment of rent decreases the Cash account.

T

Prepaid insurance and supplies are assets because they will provide benefits for more than one month.

T

The accounting equation must remain in balance.

T

The balance of a T account is on the side with the larger footing.

T

The owner's capital account normally has a credit balance.

T

The sum of the debits must equal the sum of the credits on the trial balance.

T

The trial balance is used in preparing financial statements

T

To debit an account is to enter an amount on the left side of the account.

T

When debits equal credits for a transaction, the accounting equation is in balance.

T

When services are performed for which payment will be received later, accounts receivable increases.

T

Withdrawals of cash and other assets by the owner for personal reasons decrease owner's equity.

T

difference between the footings of an account is called the balance.

T

The purchase of a supply of markers for three months should be recorded as an increase in revenue and a decrease in cash.

F

A trial balance is a formal business report.

F

Elysa paid $135 for utilities for her office; this transaction increased Cash and the expense account.

F

If services for the month total $3,300 in cash and $700 on account, the cash account increases $700.

F

Kate made a $475 payment on her company van. She should credit Accounts Payable and debit the automobile account.

F

Liability accounts normally have debit balances.

F

Mandy withdraws $600 from her business. This transaction increases cash but decreases owner's equity.

F

Prepaid Insurance is an expense account.

F

Revenue accounts normally have debit balances.

F

Revenues decrease owner's equity.

F

Services on account increase a revenue account and increase the cash account.

F

The fact that each transaction has a dual effect on the accounting elements provides the basis for what is called complex-entry accounting.

F


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