Bookkeeping 09

Question 1

1. Mnemonic device for accounts that increase with DEBITS

Answer 1

DEBBIE’s EXPENSIVE little ASS

Question 2

2. Mnemonic device for accounts that increase with CREDITS:

Answer 2

A

Question 3

3. IN ANY GIVEN ACCOUNT, under normal circumstances:

Answer 3

INCREASES will EXCEED DECREASES.

Question 4

4. Every time you make an entry in the JOURNAL, you MUST GO THROUGH THE FOLLOWING THINKING PROCESS:

Answer 4

1. What ACCOUNTS are affected by this entry?
2. Are these accounts ASSETS, LIAB, CAPITAL, REVENUES, or EXPENSES?
3. Does the transaction INCREASE or DECREASE them?
4. Does this information call for a Dr entry or a Cr entry?

Question 5

5. Say CASH SALES are 12K for the week, the entry is:

Answer 5

CASH (asset), Debit 12K
SALES REVENUE (Revenue), Credit 12K

Question 6

6. The thinking process for the entry of 12K in cash sales is:

Answer 6

1. I know the event involves CASH SALES
2. I know CASH is an ASSET and SALES is a REVENUE.
3. I see that CASH (Asset) INCREASED, AND REVENUE (asset) also INCREASED.
4. An increase in an ASSET calls for a DEBIT, while an INCREASE in a REVENUE calls for a CREDIT.

Question 7

7. Sometimes a transaction affects more than two accounts, and this is called:

Answer 7

a COMPOUND ENTRY

Question 8

8. If you buy a 23K truck with 3K cash and a 20K Note Payable, how do you make the entry?

Answer 8

1. This is a COMPOUND ENTRY (more than two accounts affected).
2. Truck (Asset): DEBIT 23K
3. Cash (Asset): CREDIT 3K
4. Note Payable (Liability): CREDIT 20K

Question 9

9. Why do REVENUES increase with CREDITS?

Answer 9

Because REVENUE, such as the income from the sale of goods, serves to ADD to the OWNER’S CAPITAL ACCOUNT.

Question 10

10. Why do EXPENSES increase with DEBITS?

Answer 10

Because they serve to REDUCE the OWNER’S CAPITAL ACCOUNT.