Question

1. Which of the following applications of the rules of debit and credit is true?

a. Increase Accounts Payable with a credit and the normal balance is a debit

b. Decrease Cash with a debit and the normal balance is a credit

c. Decrease Prepaid Insurance with a credit and the normal balance is a credit

d. Increase Equipment with a debit and the normal balance is a debit

2.

A debit signifies a decrease in

a. drawing

b. revenues

c. expenses

d. assets

3. Which of the following describes the classification and normal balance of the fees earned account?

a. liability, credit

b. revenue, credit

c. asset, credit

d. owner's equity, debit

4 A trial balance is prepared to

a. prove that no errors were made in posting to the ledger

b. prove that there were no errors made in recording transactions into the journal

c. discover errors that affect the equality of debits and credits

d. prove that each account balance is correct

Answer 1

1)

The correct answer is "d. Increase Equipment with a debit and the normal balance is a debit".

Supporting explanations:

Equipment is an asset and it always has a debit balance and as per the rule of Real Accounts, "Debit what comes in and Credit what goes out" where equipment is purchased, its balance increases because equipment comes into the business, thus, it is debited.

Accounts Payable always has a credit balance because it is a liability and it its balance increases, it will be credited, hence, first option is half wrong.

Cash is an asset and it always has debit balance only and when cash increases, it will be debited but not credited. Thus, this option is also wrong.

Prepaid Insurance is an asset account and it always has debit balance but not credit balance so decrease in this account is shown with a credit, hence, it is half wrong.

Thus, the d. option is correct.

2)

The correct answer is b. Revenues.

Drawings, expenses and assets always have debit balance but not credit balance so any debit increases the balances of these accounts but Revenue always has credit balance so any debit decreases the balance of Revenues only.

Thus, the correct answer is b. Revenues.

3)

The correct answer is b. Revenue, Credit.

Fees Earned is income earned, hence, it is treated as Revenue and it always has a credit balance. Therefore, the correct answer is Revenue, Credit.

4)

The correct answer is "c. Discovers errors that affect the equality of debits and credits".

The Trial Balance is prepared in order to know whether the final balances of Debits and Credits are equal or not, if not equal then finding out the errors or mistakes and making the necessary corrections to get the equal balance of both debit and credit.

Therefore, the correct answer is C.