FT1: Double entry bookkeeping

1.Which of the following is incorrect?

Type in the letter that corresponds with the incorrect entry.

A. A debit entry increases assets

A debit entry increases drawings

A credit entry increases profit

B. A debit entry decreases liabilities

A credit entry increases capital

A credit entry increases profit

C. A credit entry decreases assets

A debit entry increases drawings

A debit entry increases profit

D. A credit entry increases liabilities

A credit entry increases capital

A debit entry decreases profit

Correct answer: C
Although a credit entry does decrease assets, and a debit entry does increase drawings, a debit entry will
reduce profits.

2.The owner of a business has taken goods with a cost of $1,000 for his own use.

What is the double entry required?

 Debit drawings, credit inventory

Debit purchases, credit drawings

Debit drawings, credit cost of sales

Debit inventory, credit purchases

Answer: C is the correct answer because the accounts affected are purchases and drawings. As the owner's
capital is being reduced there is a debit to the drawings account, and as business purchases are being reduced
there is a credit to purchases.

3.

Frog sells $15,000 of goods on credit to Leap Co, the double entry is as follows:
DR
Sales
$15,000

CR
Receivables
$15,000

True

False

Answer: The entry is false. The correct entry should be:

DR Receivables $15,000
CR Sales $15,000

4.

A business sold goods to a customer that had a full price of $1,500. The customer was given
a trade discount of 10% and was offered a cash discount of 5% for prompt payment. The
customer took advantage of the cash discount.

How much did the customer pay the business for the goods?

$1,425.00

$1,350.00

$1,282.50
 $1,275.00

Answer: C
Full $1,500
price
Trade ($150)
discount
@10%
$1,350

Cash ($67.50)
discount
@5%
Amount $1282.50
paid
5.

Harvey commences trading on 1st January 20X5 and invests $20,000 into a business bank
account, what is the correct double entry posting for this transaction?

DR Bank $20,000 / CR Sales $20,000

DR Capital $20,000 / CR Bank $20,000

DR Bank $20,000 / CR Capital $20,000

DR Sales $20,000 / CR Bank $20,000

Answer: C .The transaction will not affect sales, but will affect bank and capital. B is incorrect because,
although the correct accounts have been identified, the entries are reversed.

6.

The draft financial statements have been prepared for T, a limited liability company. It is now
found that trade discounts totaling $2,550 have not been taken and T suppliers agree that
these should have been allowed.

The necessary amendment will:

increase gross profit and reduce net profit.

have no effect on gross profit but increase net profit.

increase both gross profit and net profit.

increase net profit and reduce gross profit.

Answer: C is the correct answer because purchases should be shown net of trade discounts (but not
settlement discounts). If the trade discount is now deducted from purchases, this will increase gross profit and
net profit.
7.

What is the correct double entry for a cash refund to a customer?

DR bank, CR receivables

DR receivables, CR Bank

DR receivables, CR refunds given

DR refunds given, CR bank

Answer: D is correct because there must be a reduction in cash (so credit to cash) and an expense
(reduction in sales) which will be offset against sales. A is incorrect because a Dr to Bank will increase the bank
balance. B and C are both incorrect because a Dr to Receivables will increase receivables, which is not what
occurs when a refund is given