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Question 1 of 5
What is the fundamental principle of double-entry bookkeeping?
A Each transaction affects only one account
B Every transaction affects at least two accounts
C Assets must equal liabilities
D Revenues must exceed expenses
Why: The fundamental principle of double-entry bookkeeping is that every financial transaction affects at least two accounts: one is debited and another is credited by an equal amount. This maintains the accounting equation (Assets = Liabilities + Equity). Option B correctly states this principle, while others are incorrect or partial concepts.[6]
Question 2 of 5
Which of these accounts will be increased by a credit?
A Cash
B Accounts Receivable
C Revenue
D Equipment
Why: Revenue accounts are increased by credits under the double-entry system, as credits represent increases for revenue, liabilities, and equity accounts. Debit increases assets like Cash, Accounts Receivable, and Equipment. Thus, option C is correct.[1]
Question 3 of 5
When a company pays off a loan, which accounts are affected in double-entry bookkeeping?
A Cash and Loans Payable
B Loans Payable and Accounts Receivable
C Cash and Accounts Payable
D Accounts Payable and Accounts Receivable
Why: Paying off a loan decreases Cash (debit) and decreases Loans Payable (credit). This dual effect upholds the double-entry rule. Option A accurately identifies the affected accounts.[6]
Question 4 of 5
Which of the following is not a book of prime entry?
A Sales day book
B Purchase day book
C Sales invoice
D Journal
Why: Books of prime entry include Sales day book, Purchase day book, and Journal for initial transaction recording before posting to ledgers. A Sales invoice is a source document, not a book of prime entry. Option C is correct.[5]
Question 5 of 5
Explain the Double Entry System in accounting.
Why: This answer covers definition, key principles with numbered points, example, and conclusion as per 3-4 mark requirements. It reflects standard exam expectations for short answers on double entry.