Financial Accounting Quiz: Debits And Credits
20 questions · exam conditions
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Debits And CreditsQuestion 1 of 20

A T-account for Accounts Receivable has a beginning debit balance of $25,000. During the period, total debits to the account were $80,000 and the ending debit balance was $35,000. What transaction is represented by the total credits to the account during the period?

Sales made to customers on credit totaling $70,000.
Cash collections from customers totaling $70,000.
Cash collections from customers totaling $80,000.
A combination of sales returns and write-offs totaling $10,000.
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Financial Accounting Quiz

Financial Accounting Quiz: Debits And Credits

Practice Debits And Credits in Financial Accounting with focused quiz questions that help you check what you know, review explanations, and build confidence with test-style prompts.

What this quiz covers

This quiz focuses on Debits And Credits, giving you a quick way to practice the rules, question types, and explanations that matter most for Financial Accounting.

How to use this quiz

Try each quiz question before looking at the correct answer. Use the explanations to review missed ideas, then come back to similar questions until the pattern feels familiar.

All questions

Question 1

A T-account for Accounts Receivable has a beginning debit balance of $25,000. During the period, total debits to the account were $80,000 and the ending debit balance was $35,000. What transaction is represented by the total credits to the account during the period?

  1. Sales made to customers on credit totaling $70,000.
  2. Cash collections from customers totaling $70,000. (correct answer)
  3. Cash collections from customers totaling $80,000.
  4. A combination of sales returns and write-offs totaling $10,000.
Explanation: The T-account formula is: Beginning Balance + Debits - Credits = Ending Balance. We have $25,000 + $80,000 - Credits = $35,000. Solving for Credits: $105,000 - Credits = $35,000. Credits = $105,000 - $35,000 = $70,000. Credits to the Accounts Receivable account primarily represent cash collections from customers. Debits represent sales on account.

Question 2

On June 15, a company paid a supplier $750. The bookkeeper erroneously debited Office Supplies and credited Cash for $750. The payment was actually for inventory that had been purchased on account in May. Which journal entry is required on June 30 to correct this error?

  1. Debit Inventory $750, credit Office Supplies $750.
  2. Debit Accounts Payable $750, credit Cash $750.
  3. Debit Accounts Payable $750, credit Office Supplies $750. (correct answer)
  4. Debit Inventory $750, credit Accounts Payable $750.
Explanation: The initial, incorrect entry was: Dr. Office Supplies $750, Cr. Cash $750. The credit to Cash was correct, but the debit was wrong. The debit should have been to Accounts Payable to reduce the liability from the May purchase. To correct the error, the incorrect debit to Office Supplies must be reversed with a credit, and the correct debit to Accounts Payable must be recorded. Therefore, the correcting entry is: Debit Accounts Payable $750, Credit Office Supplies $750.

Question 3

On November 1, a company's board of directors declares a cash dividend of $50,000, payable on December 15 to shareholders of record on November 30. The company pays the dividend on December 15. The journal entry to record the payment of the dividend on December 15 will include:

  1. A debit to Retained Earnings for $50,000.
  2. A debit to Dividends Payable for $50,000. (correct answer)
  3. A credit to Dividends for $50,000.
  4. A debit to Dividends Expense for $50,000.
Explanation: There are two key dates for accounting entries: declaration and payment. On the date of declaration (Nov. 1), the company records: Debit Dividends (or Retained Earnings) $50,000, Credit Dividends Payable $50,000. This entry recognizes the liability and reduces equity. On the date of payment (Dec. 15), the company settles the liability: Debit Dividends Payable $50,000, Credit Cash $50,000. This entry decreases a liability and decreases an asset; it does not affect equity.

Question 4

A company sells merchandise for $5,000 on account. The cost of the merchandise was $3,000. The customer later returns the merchandise, which is in resalable condition. Which of the following describes a component of the journal entry (or entries) to record the return?

  1. A $5,000 debit to Sales Revenue and a $3,000 credit to Inventory.
  2. A $5,000 credit to Sales Returns and Allowances.
  3. A $3,000 debit to Inventory and a $5,000 debit to Sales Returns and Allowances.
  4. A $3,000 credit to Cost of Goods Sold and a $5,000 credit to Accounts Receivable. (correct answer)
Explanation: Recording a sales return requires two entries. First, the revenue portion is reversed: Debit Sales Returns and Allowances for $5,000 and Credit Accounts Receivable for $5,000. Second, the cost portion is reversed: Debit Inventory for $3,000 and Credit Cost of Goods Sold for $3,000. The question asks for a component of the entries. Choice D correctly identifies the two necessary credits.

Question 5

A company purchases a machine for $50,000, paying $10,000 in cash and signing a four-year note payable for the remaining balance. Which of the following correctly states the net effect of this transaction on the company's financial position?

  1. Total assets increase by $50,000 and total liabilities increase by $40,000.
  2. Total assets increase by $40,000 and total liabilities increase by $40,000. (correct answer)
  3. Total assets remain unchanged, as the increase in one asset is offset by a decrease in another.
  4. The debit to asset accounts is $50,000, and the credit to asset accounts is $10,000.
Explanation: The journal entry for this transaction is: Debit Equipment (an asset) for $50,000, Credit Cash (an asset) for $10,000, and Credit Notes Payable (a liability) for $40,000. The net effect on total assets is an increase of 40,000(40,000 (50,000 increase in equipment minus a $10,000 decrease in cash). Total liabilities increase by $40,000 due to the new note payable.

Question 6

On November 1, a property management company received $12,000 cash from a tenant for six months of rent paid in advance. The company's bookkeeper credited Rent Revenue for the full $12,000. No adjusting entries were made by the year-end on December 31. What is the impact of this treatment on the December 31 financial statements?

  1. Liabilities are understated by $8,000 and equity is overstated by $8,000. (correct answer)
  2. Liabilities are overstated by $4,000 and revenues are understated by $4,000.
  3. Assets are correctly stated, but equity is overstated by $12,000.
  4. Revenues are overstated by $4,000 and liabilities are understated by $4,000.
Explanation: By December 31, two months of rent have been earned (November and December). The monthly rent is $12,000 / 6 = $2,000. Therefore, earned revenue is 2 * $2,000 = $4,000. The remaining four months' rent, $8,000, is unearned and should be reported as a liability (Unearned Rent Revenue). By crediting the full $12,000 to revenue, the company has overstated revenue (and thus equity) by $8,000 and understated liabilities by $8,000.

Question 7

During its first month of operations, a company completes two transactions: (1) Borrows $20,000 from a bank on a note payable. (2) Purchases $7,000 of equipment on account. Which of the following statements correctly summarizes the company's accounting equation after these two transactions?

  1. Assets = $20,000; Liabilities = $20,000; Equity = $0.
  2. Assets = $27,000; Liabilities = $20,000; Equity = $7,000.
  3. Assets = $13,000; Liabilities = 27,000;Equity=−27,000; Equity = -14,000.
  4. Assets = $27,000; Liabilities = $27,000; Equity = $0. (correct answer)
Explanation: The first transaction (borrowing cash) is recorded as: Debit Cash $20,000, Credit Notes Payable $20,000. This increases assets by $20,000 and liabilities by $20,000. The second transaction (buying equipment on account) is recorded as: Debit Equipment $7,000, Credit Accounts Payable $7,000. This increases assets by $7,000 and liabilities by $7,000. The combined effect is: Total Assets = $20,000 (Cash) + $7,000 (Equipment) = $27,000. Total Liabilities = $20,000 (Notes Payable) + $7,000 (Accounts Payable) = $27,000. Equity remains $0 as no revenue, expense, or owner investment/distribution has occurred.

Question 8

A bookkeeper recorded the payment of a $900 utility bill by debiting Utilities Expense for $90 and crediting Cash for $90. The error was not discovered before the end of the accounting period. What is the resulting impact of this error on the financial statements?

  1. The trial balance debits and credits will be unequal.
  2. Total assets will be understated by $810.
  3. Net income will be overstated by $810. (correct answer)
  4. Total expenses will be overstated by $810.
Explanation: The correct entry would have been a debit to Utilities Expense for $900 and a credit to Cash for $900. By recording the expense as only $90, Utilities Expense is understated by 810(810 (900 - $90). Understating expenses causes net income to be overstated by the same amount. Cash is overstated by $810 because the credit was too small, so total assets are overstated. The trial balance will still balance because the debit and credit in the erroneous entry were equal.

Question 9

On April 1, a company pays $3,600 for a 12-month liability insurance policy, debiting Prepaid Insurance and crediting Cash. If the company prepares financial statements for the six months ending June 30, which adjusting entry is required?

  1. Debit Insurance Expense $900, credit Prepaid Insurance $900. (correct answer)
  2. Debit Insurance Expense $1,800, credit Prepaid Insurance $1,800.
  3. Debit Prepaid Insurance $2,700, credit Insurance Expense $2,700.
  4. Debit Insurance Expense $300, credit Prepaid Insurance $300.
Explanation: The total cost of the policy is $3,600 for 12 months, which is 300permonth(300 per month (3,600 / 12). The accounting period is for the six months ending June 30, but the policy started on April 1. Therefore, three months of insurance have expired by June 30 (April, May, June). The amount of expense to be recognized is 3 months * $300/month = $900. The adjusting entry is a debit to Insurance Expense and a credit to the asset account, Prepaid Insurance, for the amount consumed.

Question 10

A company's trial balance shows total debits of $154,200 and total credits of $156,000. All accounts have their normal balances. Which of the following single errors is a possible explanation for this specific discrepancy?

  1. A debit of $900 to an expense account was erroneously posted as a credit. (correct answer)
  2. A cash purchase of equipment for $1,800 was omitted from the records.
  3. The balance of the Sales Revenue account, $18,000, was listed on the trial balance as $16,200.
  4. A credit of $1,800 to Unearned Revenue was correctly posted, but the corresponding debit to Cash was omitted.
Explanation: The total credits exceed the total debits by 1,800(1,800 (156,000 - $154,200). If a debit of $900 was incorrectly posted as a credit, the debit column would be understated by $900 from its correct total, and the credit column would be overstated by $900. This creates a total discrepancy of 1,800(1,800 (900 + $900) where the credit total is higher than the debit total, which matches the situation described.

Question 11

A transaction is recorded that debits one asset account and credits a different asset account for the same amount. Which of the following statements about the effect of this transaction is always true?

  1. The transaction increases the company's liquidity.
  2. The company has acquired a non-cash asset by paying cash.
  3. Total assets decrease as a result of the transaction.
  4. The transaction has no net effect on total liabilities or stockholders' equity. (correct answer)
Explanation: This type of transaction is an exchange of one asset for another. Examples include buying equipment with cash (Debit Equipment, Credit Cash) or collecting an account receivable (Debit Cash, Credit Accounts Receivable). In all such cases, total assets remain unchanged because the increase in one asset is exactly offset by the decrease in another. Because the transaction only involves asset accounts, it cannot affect liabilities or stockholders' equity.

Question 12

A company performed $4,000 of services for a client in the last week of its fiscal year but did not bill the client or record the transaction until the following month. What is the effect of omitting the required year-end adjusting entry?

  1. Assets are overstated and equity is overstated.
  2. Liabilities are understated and equity is overstated.
  3. Assets are understated and equity is understated. (correct answer)
  4. There is no effect on total assets, but equity is understated.
Explanation: According to the revenue recognition principle, the company earned the revenue in the current fiscal year. The required adjusting entry is a debit to Accounts Receivable (an asset) for $4,000 and a credit to Service Revenue for $4,000. By omitting this entry, Accounts Receivable is understated, causing total assets to be understated. Service Revenue is also understated, which causes net income and consequently retained earnings (equity) to be understated.

Question 13

A company with an existing trial balance purchases a building for $200,000 by paying $50,000 in cash and signing a mortgage note payable for the remainder. After this transaction is correctly recorded and posted, what is the net effect on the column totals of the company's trial balance?

  1. The debit and credit column totals both increase by $200,000.
  2. The debit column total increases by $200,000 and the credit column total increases by $150,000.
  3. The debit and credit column totals both increase by $150,000. (correct answer)
  4. The debit column total increases by $150,000 and the credit column total increases by $200,000.
Explanation: The journal entry is: Debit Building (Asset) $200,000; Credit Cash (Asset) $50,000; Credit Mortgage Payable (Liability) $150,000. Let's analyze the effect on the trial balance columns. The debit column increases by $200,000 from the new building balance. The credit to cash of $50,000 decreases the cash debit balance, effectively reducing the debit column total by 50,000.Thenetchangeinthedebitcolumntotalis+50,000. The net change in the debit column total is +200,000 - 50,000=+50,000 = +150,000. The credit column total increases by $150,000 from the new mortgage payable balance. Thus, both column totals increase by $150,000.

Question 14

A company sells goods for $1,000 on terms 2/10, n/30. The cost of the goods sold was $600. The customer pays the invoice within the 10-day discount period. Which of the following is a necessary debit in the seller's journal entry to record the cash receipt?

  1. A debit to Accounts Receivable for $1,000.
  2. A debit to Cash for $1,000.
  3. A debit to Sales Discounts for $20. (correct answer)
  4. A debit to Sales Revenue for $20.
Explanation: The amount of the sales discount is 2% of $1,000, which is $20. The customer will pay 980(980 (1,000 - $20). The journal entry to record the receipt of this payment is: Debit Cash for $980, Debit Sales Discounts for $20, and Credit Accounts Receivable for the full $1,000 to clear the customer's account. Sales Discounts is a contra-revenue account and is debited to record the reduction in revenue from the discount.

Question 15

A company's unadjusted trial balance shows a balance of $4,000 in the Supplies account. A physical count at the end of the period reveals that $1,500 of supplies are still on hand. What is the effect of the required adjusting entry on the company's accounts?

  1. A debit to Supplies for $2,500.
  2. A credit to Supplies Expense for $1,500.
  3. A decrease in stockholders' equity of $1,500.
  4. A decrease in total assets of $2,500. (correct answer)
Explanation: The company started with $4,000 of supplies and ended with $1,500. This means 2,500(2,500 (4,000 - $1,500) of supplies were used during the period. The adjusting entry to record the supplies used is: Debit Supplies Expense $2,500, Credit Supplies $2,500. The debit to Supplies Expense decreases net income and therefore stockholders' equity by $2,500. The credit to the Supplies asset account decreases total assets by $2,500.

Question 16

A company records an adjusting entry for accrued wages of $2,100 at month-end. Two days into the following month, the company pays $3,500 total wages, which includes the $2,100 accrued amount. What entry should be recorded when the wages are paid?

  1. Debit Wages Expense $3,500; Credit Cash $3,500
  2. Debit Wages Expense $1,400; Credit Wages Payable $1,400, Credit Cash $2,100
  3. Debit Wages Payable $2,100, Debit Wages Expense $1,400; Credit Cash $3,500 (correct answer)
  4. Debit Wages Payable $3,500; Credit Cash $3,500
Explanation: When you encounter questions about accrued expenses followed by actual payments, you need to understand how the accrual affects the subsequent payment entry. The key is recognizing that accrued expenses create liabilities that must be eliminated when payment occurs. At month-end, the company recorded: Debit Wages Expense $2,100; Credit Wages Payable $2,100. This created a $2,100 liability on the balance sheet. When the $3,500 payment is made, you must eliminate this existing liability and record any additional expense for the current period. The $3,500 total payment consists of two components: $2,100 to satisfy the previously accrued wages payable, and $1,400 for new wages expense in the current month. Therefore, the correct entry debits Wages Payable $2,100 (eliminating the liability), debits Wages Expense $1,400 (recording current period expense), and credits Cash $3,500 (the total payment). Option A incorrectly treats the entire $3,500 as current expense, ignoring the existing payable. Option B has the right amounts but wrong structure—it credits both Wages Payable and Cash, which doesn't make sense since payables should be debited when eliminated. Option D incorrectly treats the entire payment as elimination of payables, suggesting $3,500 was previously accrued when only $2,100 was. Remember: when paying accrued expenses, always eliminate the existing payable first, then record any additional current-period expense. The total debits will equal the cash payment.

Question 17

Beacon Services has the following account balances: Cash $15,000 (debit), Accounts Receivable $8,000 (debit), Equipment $25,000 (debit), Accumulated Depreciation $5,000 (credit), Accounts Payable $12,000 (credit), Notes Payable $18,000 (credit), Common Stock $10,000 (credit).

Based on the account balances shown, what should be the balance in Retained Earnings to ensure the accounting equation balances?

  1. $23,000 credit balance
  2. $3,000 debit balance
  3. $13,000 credit balance
  4. $3,000 credit balance (correct answer)
Explanation: When you encounter account balances like these, you're working with the fundamental accounting equation: Assets = Liabilities + Stockholders' Equity. The key is systematically organizing the given information and solving for the missing piece. First, calculate total assets: Cash (15,000)+AccountsReceivable(15,000) + Accounts Receivable (8,000) + Equipment (25,000)−AccumulatedDepreciation(25,000) - Accumulated Depreciation (5,000) = $43,000. Remember that accumulated depreciation reduces the asset value, which is why you subtract it. Next, identify the liabilities: Accounts Payable (12,000)+NotesPayable(12,000) + Notes Payable (18,000) = $30,000. Stockholders' equity consists of Common Stock ($10,000) plus Retained Earnings (unknown). Using the accounting equation: $43,000 = $30,000 + $10,000 + Retained Earnings. Solving: Retained Earnings = $43,000 - $40,000 = $3,000 credit balance. Answer D (3,000creditbalance)iscorrect.AnswerA(3,000 credit balance) is correct. Answer A (23,000 credit) likely results from forgetting to subtract accumulated depreciation from assets. Answer B (3,000debitbalance)getstheamountrightbutincorrectlymakesitadebit—retainedearningsnormallycarriesacreditbalancerepresentingaccumulatedprofits.AnswerC(3,000 debit balance) gets the amount right but incorrectly makes it a debit—retained earnings normally carries a credit balance representing accumulated profits. Answer C (13,000 credit) probably comes from calculation errors in totaling assets or liabilities. Study tip: Always remember that retained earnings typically has a credit balance (unless the company has accumulated losses). When solving for missing equation components, double-check that accumulated depreciation reduces assets and that all normal account balances make sense.

Question 18

Atlas Company's trial balance shows the following account balances before adjusting entries: Supplies $2,400 (debit), Prepaid Insurance $3,600 (debit), Unearned Revenue $1,800 (credit). During the period, $800 of supplies were used, $1,200 of prepaid insurance expired, and $900 of unearned revenue was earned.

After posting the adjusting entries, what is the combined debit balance of Supplies and Prepaid Insurance?

  1. $3,400
  2. $4,000 (correct answer)
  3. $4,200
  4. $6,000
Explanation: Supplies adjusting entry: Dr. Supplies Expense $800, Cr. Supplies $800. New Supplies balance = $2,400 - $800 = $1,600. Insurance adjusting entry: Dr. Insurance Expense $1,200, Cr. Prepaid Insurance $1,200. New Prepaid Insurance balance = $3,600 - $1,200 = $2,400. Combined debit balance = $1,600 + $2,400 = $4,000. Choice A subtracts both adjustments from only the supplies balance. Choice C fails to reduce prepaid insurance. Choice D uses the original balances without adjustments.

Question 19

For which of the following pairs of accounts are the normal balances correctly identified?

  1. Accumulated Depreciation (Debit) and Cost of Goods Sold (Debit).
  2. Dividends (Credit) and Service Revenue (Credit).
  3. Sales Discounts (Debit) and Unearned Revenue (Credit). (correct answer)
  4. Inventory (Debit) and Sales Returns and Allowances (Credit).
Explanation: This question tests normal balances, including those for contra accounts. Sales Discounts is a contra-revenue account, which has a normal debit balance. Unearned Revenue is a liability account, which has a normal credit balance. This pair is correct. Distractors contain errors: Accumulated Depreciation (a contra-asset) has a normal credit balance. Dividends (reduces equity) has a normal debit balance. Sales Returns and Allowances (a contra-revenue) has a normal debit balance.

Question 20

When a profitable company performs its closing entries at year-end, what is the effect of closing the revenue and expense accounts into the Income Summary account?

  1. Income Summary is debited for total revenues and credited for total expenses, resulting in a debit balance.
  2. Revenue accounts are credited and expense accounts are debited to transfer their balances.
  3. The Income Summary account will temporarily hold a credit balance equal to the period's net income. (correct answer)
  4. Retained Earnings is credited by the closing entry for revenues and debited by the closing entry for expenses.
Explanation: To close revenue accounts (which have a normal credit balance), they are debited, and Income Summary is credited. To close expense accounts (normal debit balance), they are credited, and Income Summary is debited. Since the company is profitable, total revenues exceed total expenses. Therefore, the total credit to Income Summary will be larger than the total debit, resulting in a credit balance equal to net income. This balance is then closed to Retained Earnings.