Multiple Choice
When John transfers funds online from his savings account to his checking account, what is the correct journal entry to record this transaction?
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2. Transaction Analysis
Journal Entries: Debits and Credits
Multiple Choice
In double-entry accounting, which of the following statements is correct?
A
Debits always increase all types of accounts.
B
Every transaction affects at least two accounts, with total debits always equaling total credits.
C
Credits are only used to record increases in asset accounts.
D
A transaction can be recorded with only a single entry if it is immaterial.
Verified step by step guidance1
Understand the concept of double-entry accounting: Double-entry accounting is a system where every transaction affects at least two accounts, ensuring that the accounting equation (Assets = Liabilities + Equity) remains balanced.
Clarify the role of debits and credits: Debits and credits are used to record changes in accounts. Debits do not always increase all types of accounts; they increase asset and expense accounts but decrease liability, equity, and revenue accounts. Credits have the opposite effect.
Analyze the statement 'Every transaction affects at least two accounts, with total debits always equaling total credits': This is correct because double-entry accounting requires that for every debit entry, there is an equal and corresponding credit entry to maintain balance.
Evaluate the statement 'Credits are only used to record increases in asset accounts': This is incorrect because credits decrease asset accounts and increase liability, equity, and revenue accounts.
Assess the statement 'A transaction can be recorded with only a single entry if it is immaterial': This is incorrect because double-entry accounting requires at least two accounts to be affected, regardless of the materiality of the transaction.
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