Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

2. Transaction Analysis

Journal Entries: Debits and Credits

Financial Accounting

2. Transaction Analysis

Journal Entries: Debits and Credits

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Multiple Choice

Which of the following statements is incorrect regarding the use of debits and credits in journal entries for written contracts?

A written contract that results in the acquisition of an asset is recorded by debiting the appropriate asset account.

When a company signs a written contract but no cash or goods have been exchanged, no journal entry is required.

All written contracts must be recorded as journal entries at the time they are signed, regardless of whether any transaction has occurred.

A written contract that creates a liability is recorded by debiting a liability account.

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Verified step by step guidance

Step 1: Understand the concept of debits and credits in journal entries. Debits are used to increase asset and expense accounts, while credits are used to increase liability, equity, and revenue accounts. This foundational knowledge is essential for analyzing the statements provided.

Step 2: Analyze the first statement: 'A written contract that results in the acquisition of an asset is recorded by debiting the appropriate asset account.' This is correct because acquiring an asset increases the asset account, which is recorded as a debit.

Step 3: Analyze the second statement: 'When a company signs a written contract but no cash or goods have been exchanged, no journal entry is required.' This is correct because journal entries are only recorded when a transaction occurs, not merely when a contract is signed.

Step 4: Analyze the third statement: 'All written contracts must be recorded as journal entries at the time they are signed, regardless of whether any transaction has occurred.' This is incorrect because journal entries are only made when there is a financial transaction, not just the signing of a contract.

Step 5: Analyze the fourth statement: 'A written contract that creates a liability is recorded by debiting a liability account.' This is incorrect because liabilities are increased by credits, not debits. Debits would decrease a liability account.