Question

MID TERM EXAM ACT 170 SDUIS WITNTER S1 2019 STUDENT NAME 1. Describe how accounts, debits, and credits are used to record business transactions: 2. Why is the accounting system referred to as a Double Entry System? 3. What is the effect of Owner's Investments and Revenues and Owner's Drawings and expenses on Equity? 4. Explain the Summary of Debit and Credit Rules for the Balance sheet and Income Statement? 5 Debits increase assets and decrease liabilities. T/ F? 6. What accounts normally have debit balances? 7. Identify the three activities associated with accounting. 8. Accountants prepare and interpret financial reports. T/ F? 9. The Historical Cost Principle 10. What are the three components of the basic accounting equation?

Answer 1

1. Debits and credits are an integral part of the accounting system. They are the method used to record business transactions, and keep track of assets and liabilities. Anything that has a monetary value is recorded as a debit or credit, depending on the transaction taking place.The amount in every transaction must be entered in one account as a debit (left side of the account) and in another account as a credit (right side of the account).

2. Double-entry bookkeeping, in accounting, is a system of bookkeeping so named because every entry to an account requires a corresponding and opposite entry to a different account. The double-entry has two equal and corresponding sides known as debit and credit.

3. Owner's equity will increase if you have revenues and gains. Owner's equity decreases if you have expenses and losses. If your liabilities become greater than your assets, you will have a negative owner's equity.The owner's drawings will affect the company's balance sheet by decreasing the asset that is withdrawn and by the decrease in owner's equity. The owner's drawings of cash will also affect the financing activities section of the statement of cash flows.

4.

Rule 1: All accounts that normally contain a debit balance will increase in amount when a debit (left column) is added to them, and reduced when a credit (right column) is added to them. The types of accounts to which this rule applies are expenses, assets, and dividends.

Rule 2: All accounts that normally contain a credit balance will increase in amount when a credit (right column) is added to them, and reduced when a debit (left column) is added to them. The types of accounts to which this rule applies are liabilities, revenues, and equity.

Rule 3: Contra accounts reduce the balances of the accounts with which they are paired. This means that (for example) a contra account paired with an asset account behaves as though it were a liability account.

Rule 4: The total amount of debits must equal the total amount of credits in a transaction. Otherwise, a transaction is said to be unbalanced, and the financial statements from which a transaction is constructed will be inherently incorrect. An accounting software package will flag any journal entries that are unbalanced, so that they cannot be entered into the system until they have been corrected.

5. True

6. Assets, expenses, losses, and the owner's drawing account will normally have debit balances.

7. Collection of data , recording of data , processing of data

8. True

9. most assets are to be recorded on the balance sheet at their historical cost even if they have significantly increased in value over time.

10. Assets , liabilities and owner's equity