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

How are expenses typically recorded in the accounting system using debits and credits?

Expenses are recorded only when cash is received.

Expenses are increased with a credit entry.

Expenses are increased with a debit entry.

Expenses are decreased with a debit entry.

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Verified step by step guidance

Understand the basic principle of debits and credits: In accounting, debits and credits are used to record transactions. Debits increase asset and expense accounts, while credits increase liability, equity, and revenue accounts.

Recognize the nature of expense accounts: Expense accounts represent costs incurred by a business during its operations. These accounts are part of the income statement and reduce net income.

Learn how expenses are recorded: Expenses are increased with a debit entry because they reduce equity (retained earnings) and are part of the normal balance of expense accounts, which is a debit balance.

Understand the timing of expense recognition: Expenses are recorded when incurred, not when cash is received or paid, following the accrual basis of accounting. This ensures that expenses match revenues in the same period (matching principle).

Review incorrect statements: Expenses are not increased with a credit entry, nor are they decreased with a debit entry. These statements contradict the fundamental rules of debits and credits in accounting.