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

In recording an accounting transaction in a double-entry system, which of the following must always be true?

The total amount of debits must equal the total amount of credits.

Only one account is affected by each transaction.

Debits must always exceed credits.

Credits must always exceed debits.

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Verified step by step guidance

Understand the concept of the double-entry accounting system: In this system, every transaction affects at least two accounts, and the total debits must always equal the total credits. This ensures the accounting equation (Assets = Liabilities + Equity) remains balanced.

Review the options provided in the problem: Analyze each statement to determine its validity based on the principles of double-entry accounting.

Evaluate the first option: 'The total amount of debits must equal the total amount of credits.' This is a fundamental rule of double-entry accounting and must always be true.

Evaluate the second option: 'Only one account is affected by each transaction.' This is incorrect because double-entry accounting requires at least two accounts to be affected for every transaction.

Evaluate the third and fourth options: 'Debits must always exceed credits' and 'Credits must always exceed debits.' Both are incorrect because the total debits and credits must always be equal, not one exceeding the other.