Version 02

Question 1

When an asset decreases there are four likely reasons

Answer 1

1. Acquire an asset for cash (DR Assets increase, CR Assets decrease; common)
2. Pay off a liability, usually with cash (DR Liabilities decrease, CR Assets decrease; common)
3. Buy back stock from shareholders, usually with cash (DR POE decease, CR Assets decrease; occasional)
4. Pay an expense, usually with cash (DR Exp increase, CR Assets decrease; common)

Question 2

When a liability increases there are three likely reasons

Answer 2

1. Borrow money, buy an asset on credit, or receive an advance from a customer (DR Assets increase, CR Liabilities increase; common)
2. Declare a dividend (DR POE decrease, CR Liabilities increase; occasional)
3. Incur an expense not yet paid (DR Exp increase, CR Liabilities increase; common)

Question 3

When PEO goes up there is only one reason

Answer 3

1. Sell stock to shareholders (DR Assets increase, CR POE increase; occasional)

Question 4

When revenue increases there are two likely reasons

Answer 4

1. Earn a revenue that was received now (cash) or will be received later (receivable) (DR Assets increase, CR Rev increase; common)
2. Earn a revenue that was received previously (DR Liabilities decrease, CR Rev increase; common)

Question 5

Purchase inventory for cash

Answer 5

DR Inventory (A)
CR Cash (A)

Question 6

Collect receivable from previous credit sale to customer

Answer 6

DR Cash (A)
CR AR (A)

Question 7

Purchase insurance in advance

Answer 7

DR Prepaid Insurance (A)
CR Cash (A)

Question 8

Borrow money from a bank

Answer 8

DR Cash (A)
CR Loan Payable (L)

Question 9

Buy inventory on account (credit) that will be paid later

Answer 9

DR Inventory (A)
CR AP (L)

Question 10

Receive advance payment from a customer, good or service to be provided later

Answer 10

DR Cash (A)
CR Deferred Revenue (L)

Question 11

Receive advance payment from a customer, good or service to be provided later

Answer 11

DR Cash (A)
CR Deferred Revenue (L)

Question 12

Pay for inventory previously purchased on account

Answer 12

CANCEL

Question 13

Pay for wages previously recorded as an expense and a liability

Answer 13

DR Wages Payable (L)
CR Cash (A)

Question 14

Record a cash sale

Answer 14

DR Cash (A)
CR Sales Revenue (R)

Question 15

Record a credit sale

Answer 15

DR AR (A)
CR Sales Revenue (R)

Question 16

Record revenue for providing a good or service that was paid for in advance

Answer 16

DR Deferred Revenue (L)

CR Sales Revenue (R)

Question 17

Record wages due to employees that have not yet been paid

Answer 17

DR Wage Expense (Exp)

CR Wages Payable (L)

Question 18

Record interest due on a loan that has not yet been paid

Answer 18

DR Interest Expense (Exp)

CR Interest Payable (L)

Question 19

Record expense related to sale of inventory

Answer 19

DR COGS (Exp)
CR Inventory (A)

Question 20

Record expense related to consumption of insurance paid in advance

Answer 20

DR Insurance Expense (Exp)

CR Prepaid Insurance (A)

Question 21

Record sale (issue) of common stock to shareholders

Answer 21

DR Cash (A)
CR Common Stock (POE)

Question 22

Record repurchase of common stock from shareholders

Answer 22

DR Common Stock (POE)
CR Cash (A)

Question 23

Record a declaration of cash dividends by the board of directors

Answer 23

DR Retained Earnings (POE)

CR Dividends Payable (L)

Question 24

Company sells common stock to shareholders for $5,000 in cash

Answer 24

DR Cash (A) 5,000
CR Common Stock (POE) 5,000

Question 25

The company borrows $1,000 from a bank

Answer 25

``` DR Cash (A) 1,000 CR Bank Loan (L) 1,000 ```

Question 26

The company pays first and last month's rent on a storage space for $300

Answer 26

``` DR Prepaid Rent (A) 300 CR Cash (A) 300 ```

Question 27

The company buys inventory for $1,500 on account

Answer 27

``` DR Inventory (A) 1,500 CR AP (L) 1,500 ```

Question 28

The company sells $200 worth of inventory for $350 in cash

Answer 28

``` DR Cash (A) 350 CR Sales Revenue (R) 350 ``` ``` DR COGS (E) 200 CR Inventory (A) 200 ```

Question 29

The company sells $500 worth of inventory for $800 "on account"

Answer 29

``` DR AR (A) 800 CR Sales Revenue (R) 800 ``` ``` DR COGS (E) 500 CR Inventory (A) 500 ```

Question 30

The company pays wages of $400 for the previous two weeks' work

Answer 30

``` DR Other Expense (E) 400 CR Cash (A) 400 ```

Question 31

The company receives an advance payment from a customer for $600

Answer 31

``` DR Cash (A) 600 CR Deferred Revenue (L) 600 ```

Question 32

The company collects all $800 owed from sale on account

Answer 32

DR Cash 800 | CR AR 800

Question 33

The company buys $500 in inventory on account

Answer 33

DR Inventory 500 | CR AP 500

Question 34

The company provides $400 in inventory to the customer who paid in advance, completing that order from customer paying the $600 in advance previously

Answer 34

DR Deferred Revenue 600 CR Sales Revenue 600 DR COGS 400 CR Inventory 400

Question 35

The company owes employees $400 in wages to be paid next month

Answer 35

DR Other Expense 400 | CR Wages Payable 400

Question 36

The company estimates that it consumed $100 worth of electricity during the month

Answer 36

DR Other Expense 100 | CR Electricity Payable 100

Question 37

The company has consumed one month of rental services ($150)

Answer 37

DR Other Expense 150 | CR Prepaid Rent 150

Question 38

The company owes the bank $10 in interest to be paid next month

Answer 38

DR Interest Expense 10 | CR Interest Payable 10

Question 39

Starbucks declares a dividend of $30

Answer 39

DR Retained Earnings (-OE) 30 | CR Accrued Liabilities (+L) 30

Question 40

Starbucks pays the dividend of $30 that was previously declared

Answer 40

``` DR Accrued Liabilities (-L) 30 CR Cash (-A) 30 ```