Debits and Credits Questions

Scroll down to see the correct answers with detailed explanations.

Test your accounting knowledge with this Debits and Credits True/False quiz designed for students and beginners.

1. Debits and credits must always be equal in every journal entry.
2. A debit entry increases an asset account.
3. A credit entry increases an expense account.
4. Liabilities are increased by a debit entry.
5. Equity accounts are decreased by a credit entry.
6. Revenues are recorded with a credit entry.
7. Debits and credits apply only to cash transactions.
8. A debit entry in a liability account will increase its balance.
9. When recording depreciation, a debit is made to an expense account.
10. A credit to the sales account decreases its balance.
11. A debit entry in an asset account decreases its balance.
12. Revenue accounts decrease with debit entries.
13. The normal balance of an expense account is a credit.
14. The normal balance of an asset account is a debit.
15. Accrued liabilities are credited when recognized.
16. The cash account is increased by crediting it.
17. Owners’ equity decreases with a debit entry.
18. Unearned revenue is recorded as a debit.
19. A debit in the dividends account increases equity.
20. Debits and credits must balance only at the end of the accounting period.

 

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Debits and Credits (Answer & Explanations)

1. Debits and credits must always be equal in every journal entry.
   • Answer: True
   • Explanation: This is a fundamental principle of double-entry bookkeeping; every debit must have a corresponding credit.
2. A debit entry increases an asset account.
   • Answer: True
   • Explanation: Debiting an asset account increases its balance, as assets are recorded on the debit side of the balance sheet.
3. A credit entry increases an expense account.
   • Answer: False
   • Explanation: Expense accounts increase with a debit entry and decrease with a credit entry.
4. Liabilities are increased by a debit entry.
   • Answer: False
   • Explanation: Liabilities increase with a credit entry and decrease with a debit entry.
5. Equity accounts are decreased by a credit entry.
   • Answer: False
   • Explanation: Equity accounts increase with credits and decrease with debits.
6. Revenues are recorded with a credit entry.
   • Answer: True
   • Explanation: Revenues increase the equity of a business and are recorded with credits.
7. Debits and credits apply only to cash transactions.
   • Answer: False
   • Explanation: Debits and credits apply to all types of transactions, not just cash.
8. A debit entry in a liability account will increase its balance.
   • Answer: False
   • Explanation: A debit entry decreases the balance of a liability account.
9. When recording depreciation, a debit is made to an expense account.
   • Answer: True
   • Explanation: Depreciation is an expense, so it increases with a debit entry.
10. A credit to the sales account decreases its balance.
    • Answer: False
    • Explanation: Sales increase with credits, so a credit increases the balance of the sales account.
11. A debit entry in an asset account decreases its balance.
    • Answer: False
    • Explanation: A debit entry increases the balance of an asset account.
12. Revenue accounts decrease with debit entries.
    • Answer: True
    • Explanation: Revenue accounts, part of equity, decrease with debit entries.
13. The normal balance of an expense account is a credit.
    • Answer: False
    • Explanation: The normal balance of an expense account is a debit.
14. The normal balance of an asset account is a debit.
    • Answer: True
    • Explanation: Asset accounts have a normal debit balance, meaning they increase with debits.
15. Accrued liabilities are credited when recognized.
    • Answer: True
    • Explanation: Accrued liabilities represent obligations and are recorded with a credit.
16. The cash account is increased by crediting it.
    • Answer: False
    • Explanation: Cash is an asset account, which increases with debits.
17. Owners’ equity decreases with a debit entry.
    • Answer: True
    • Explanation: Owners’ equity accounts decrease with debits and increase with credits.
18. Unearned revenue is recorded as a debit.
    • Answer: False
    • Explanation: Unearned revenue is a liability and is recorded with a credit.
19. A debit in the dividends account increases equity.
    • Answer: False
    • Explanation: Dividends decrease equity, so a debit to the dividends account decreases equity.
20. Debits and credits must balance only at the end of the accounting period.
    • Answer: False
    • Explanation: Debits and credits must balance for every single transaction.

 

Debit and Credit Quiz: 50 True or False Questions with Answers and Detailed Explanations

Introduction

Understanding debits and credits is one of the most important skills in accounting. The double-entry bookkeeping system relies on correctly recording debits and credits to maintain accurate financial records and keep the accounting equation balanced. Test your knowledge with these 50 Debit and Credit True or False questions, complete with answers and detailed explanations.

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Debit and Credit Quiz – True or False Questions

Question 1

True or False: A debit is always recorded on the left side of an account.

✅ Answer: True

Explanation:
In accounting, the left side of a T-account is the debit side, while the right side is the credit side. This rule applies regardless of the account type.

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Question 2

True or False: A credit is always recorded on the right side of an account.

✅ Answer: True

Explanation:
Credits are consistently recorded on the right side of ledger accounts. Every accounting transaction includes at least one debit and one credit.

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Question 3

True or False: Debits always increase every type of account.

❌ Answer: False

Explanation:
Debits increase assets, expenses, and drawings, but decrease liabilities, equity, and revenues.

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Question 4

True or False: Credits always increase liabilities.

✅ Answer: True

Explanation:
Liability accounts have normal credit balances. Therefore, recording a credit increases a liability account.

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Question 5

True or False: Assets normally have debit balances.

✅ Answer: True

Explanation:
Assets such as Cash, Inventory, and Equipment increase with debits and therefore typically carry debit balances.

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Question 6

True or False: Revenue accounts normally have debit balances.

❌ Answer: False

Explanation:
Revenue accounts normally have credit balances because revenues increase owner’s equity.

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Question 7

True or False: Accounts Payable is a liability account.

✅ Answer: True

Explanation:
Accounts Payable represents amounts owed to suppliers and is classified as a liability.

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Question 8

True or False: Cash is an asset account.

✅ Answer: True

Explanation:
Cash is one of the most common asset accounts and normally carries a debit balance.

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Question 9

True or False: Every transaction in double-entry accounting affects at least two accounts.

✅ Answer: True

Explanation:
The double-entry system requires at least two accounts to be impacted to keep the accounting equation balanced.

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Question 10

True or False: Total debits must always equal total credits.

✅ Answer: True

Explanation:
This is the fundamental rule of double-entry bookkeeping.

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Question 11

True or False: Crediting Cash increases the cash balance.

❌ Answer: False

Explanation:
Cash is an asset. Assets increase with debits and decrease with credits.

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Question 12

True or False: Debiting Cash increases the cash balance.

✅ Answer: True

Explanation:
A debit entry to Cash increases this asset account.

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Question 13

True or False: Expenses normally increase with debits.

✅ Answer: True

Explanation:
Expense accounts have normal debit balances and increase when debited.

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Question 14

True or False: Unearned Revenue is a liability account.

✅ Answer: True

Explanation:
It represents an obligation to provide goods or services in the future.

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Question 15

True or False: Owner’s Capital normally increases with debits.

❌ Answer: False

Explanation:
Capital accounts normally increase through credit entries.

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Question 16

True or False: Inventory is classified as an asset.

✅ Answer: True

Explanation:
Inventory is a current asset because it is expected to be sold within the normal operating cycle.

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Question 17

True or False: Accounts Receivable normally has a credit balance.

❌ Answer: False

Explanation:
Accounts Receivable is an asset and normally has a debit balance.

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Question 18

True or False: A debit can decrease a liability account.

✅ Answer: True

Explanation:
Liabilities increase with credits and decrease with debits.

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Question 19

True or False: Revenue increases with credits.

✅ Answer: True

Explanation:
Revenue accounts carry normal credit balances.

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Question 20

True or False: Expenses increase owner’s equity.

❌ Answer: False

Explanation:
Expenses reduce net income and therefore decrease owner’s equity.

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Question 21

True or False: Paying cash for rent requires a credit to Cash.

✅ Answer: True

Explanation:
Cash decreases when rent is paid, so Cash is credited.

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Question 22

True or False: Rent Expense is debited when rent is paid.

✅ Answer: True

Explanation:
The expense increases and therefore receives a debit entry.

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Question 23

True or False: Debits and credits represent good and bad transactions.

❌ Answer: False

Explanation:
Debits and credits are simply accounting terms indicating the left and right sides of accounts.

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Question 24

True or False: Equipment is an asset account.

✅ Answer: True

Explanation:
Equipment provides future economic benefits and is classified as a long-term asset.

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Question 25

True or False: Notes Payable normally has a debit balance.

❌ Answer: False

Explanation:
Notes Payable is a liability and normally has a credit balance.

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Question 26

True or False: Drawing accounts normally increase with debits.

✅ Answer: True

Explanation:
Owner withdrawals reduce equity and increase through debit entries.

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Question 27

True or False: Service Revenue decreases when credited.

❌ Answer: False

Explanation:
Revenue accounts increase with credits.

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Question 28

True or False: Cash received from customers increases Cash through a debit.

✅ Answer: True

Explanation:
Cash is an asset, and assets increase through debits.

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Question 29

True or False: Accounts Payable decreases when credited.

❌ Answer: False

Explanation:
Accounts Payable increases when credited.

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Question 30

True or False: A trial balance should have equal debits and credits.

✅ Answer: True

Explanation:
An unequal trial balance indicates accounting errors.

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Question 31

True or False: Assets increase with credits.

❌ Answer: False

Explanation:
Assets increase through debits and decrease through credits.

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Question 32

True or False: Liabilities increase through credits.

✅ Answer: True

Explanation:
This is the normal balance rule for liabilities.

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Question 33

True or False: Owner investments increase capital.

✅ Answer: True

Explanation:
Additional investments increase owner’s equity.

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Question 34

True or False: Capital accounts normally carry credit balances.

✅ Answer: True

Explanation:
Equity accounts generally have normal credit balances.

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Question 35

True or False: Revenue accounts are temporary accounts.

✅ Answer: True

Explanation:
Revenue accounts are closed at the end of each accounting period.

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Question 36

True or False: Expense accounts are permanent accounts.

❌ Answer: False

Explanation:
Expenses are temporary accounts closed at period-end.

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Question 37

True or False: The accounting equation must remain balanced after every transaction.

✅ Answer: True

Explanation:
Every journal entry is designed to maintain accounting equation balance.

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Question 38

True or False: A credit to Accounts Receivable increases customer balances.

❌ Answer: False

Explanation:
Accounts Receivable decreases when credited.

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Question 39

True or False: Cash payments reduce cash through credit entries.

✅ Answer: True

Explanation:
Cash is credited whenever it decreases.

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Question 40

True or False: Purchasing equipment for cash increases Equipment.

✅ Answer: True

Explanation:
Equipment is debited because the asset increases.

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Question 41

True or False: Revenue accounts normally decrease with debits.

✅ Answer: True

Explanation:
Revenue accounts have normal credit balances, so debits reduce them.

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Question 42

True or False: Expense accounts decrease with credits.

✅ Answer: True

Explanation:
Expenses normally increase with debits and decrease with credits.

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Question 43

True or False: The abbreviation “DR” stands for Debit.

✅ Answer: True

Explanation:
DR is the standard accounting abbreviation for Debit.

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Question 44

True or False: The abbreviation “CR” stands for Credit.

✅ Answer: True

Explanation:
CR is universally used to indicate Credit entries.

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Question 45

True or False: Double-entry accounting requires at least one debit and one credit for every transaction.

✅ Answer: True

Explanation:
This requirement ensures the books remain balanced.

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Question 46

True or False: A debit to Accounts Payable increases the amount owed to suppliers.

❌ Answer: False

Explanation:
A debit decreases Accounts Payable and reduces the liability.

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Question 47

True or False: Journal entries are used to record debits and credits.

✅ Answer: True

Explanation:
All accounting transactions are initially recorded through journal entries.

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Question 48

True or False: A company can record a transaction with only a debit entry.

❌ Answer: False

Explanation:
Double-entry accounting requires both debit and credit entries.

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Question 49

True or False: Liabilities and equity generally have normal credit balances.

✅ Answer: True

Explanation:
Both categories increase through credits.

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Question 50

True or False: Understanding debits and credits is essential for mastering accounting.

✅ Answer: True

Explanation:
Debits and credits form the foundation of bookkeeping, journal entries, ledgers, financial statements, and the entire accounting cycle. A strong understanding of these concepts is critical for accounting students, bookkeepers, accountants, and finance professionals.—

Debit and Credit Quiz: True or False Section

Part 1: Basic Rules & The Accounting Equation

Question 1

The term “Debit” always means an increase, and “Credit” always means a decrease.

• Answer: False

• Rationale: “Debit” simply means the left side of an account, and “Credit” means the right side. Whether they increase or decrease an account depends entirely on the account type. For example, a debit increases an asset but decreases a liability.

Question 2

Every accounting transaction must affect at least two different accounts.

• Answer: True

• Rationale: This is the core principle of double-entry accounting. To keep the accounting equation balanced, a change in one account must be accompanied by an equal and opposite change in another account.

Question 3

In a trial balance, total debits must always equal total credits.

• Answer: True

• Rationale: Because every transaction is recorded with equal debits and credits, the sum of all debit balances in the ledger must exactly equal the sum of all credit balances at any given time.

Question 4

If the trial balance is perfectly in balance, it proves that no errors were made in the journal entries.

• Answer: False

• Rationale: A trial balance can still balance even if errors exist. For example, if a transaction was completely omitted, posted to the wrong account but on the correct side, or recorded with the wrong (but equal) amount, the trial balance will still balance.

Question 5

Dividends have a normal credit balance because they are distributed to the owners.

• Answer: False

• Rationale: Dividends reduce equity. Since equity increases with a credit, any account that reduces equity (like dividends or drawings) carries a normal debit balance.

Part 2: Asset Accounts

Question 6

An increase in Cash is always recorded as a debit entry.

• Answer: True

• Rationale: Cash is an asset account. All asset accounts have a normal debit balance, meaning they increase with debits and decrease with credits.

Question 7

Prepaid Insurance is an expense account, so it increases with a debit.

• Answer: False

• Rationale: Prepaid Insurance is an asset account representing an economic benefit to be used in the future. While it does increase with a debit, it is classified as an asset, not an expense, until it expires.

Question 8

When a company buys land by paying cash, total assets remain unchanged.

• Answer: True

• Rationale: This is an asset exchange transaction. The company debits Land (increases assets) and credits Cash (decreases assets) by the exact same amount, leaving total assets net unchanged.

Question 9

Accounts Receivable decreases with a credit entry.

• Answer: True

• Rationale: Accounts Receivable is an asset representing money owed by customers. To decrease this asset (e.g., when a customer pays their bill), you must credit the account.

Question 10

Accumulated Depreciation carries a normal debit balance because it relates to fixed assets.

• Answer: False

• Rationale: Accumulated Depreciation is a “contra-asset” account. It directly reduces the value of fixed assets, meaning it carries a normal credit balance, which is opposite to standard assets.

Part 3: Liability Accounts

Question 11

Accounts Payable increases with a credit entry.

• Answer: True

• Rationale: Accounts Payable is a liability account. Liabilities represent obligations to external parties and carry a normal credit balance, meaning they increase on the credit side.

Question 12

When a company pays off a bank loan, the Note Payable account is credited.

• Answer: False

• Rationale: Paying off a loan decreases the liability. Since liabilities carry a normal credit balance, they are decreased using a debit entry. The correct entry is to debit Note Payable and credit Cash.

Question 13

Unearned Revenue is classified as a revenue account and has a normal credit balance.

• Answer: False

• Rationale: While it has a normal credit balance, Unearned Revenue is a liability account, not a revenue account. It represents an obligation to perform services or deliver goods in the future for cash received in advance.

Question 14

Salaries Payable is decreased by a debit entry when employees are finally paid.

• Answer: True

• Rationale: Salaries Payable is a liability. When the cash is distributed to employees, the liability is reduced or settled, which requires a debit to Salaries Payable.

Question 15

An increase in a liability account usually happens on the right side of the T-account.

• Answer: True

• Rationale: The right side of any T-account is the credit side. Since liabilities have a normal credit balance, they increase on the right side.

Part 4: Equity Accounts

Question 16

Common Stock increases with a credit entry.

• Answer: True

• Rationale: Common Stock is an equity account that tracks the owner’s investments. Equity accounts carry a normal credit balance and increase with credit entries.

Question 17

Retained Earnings is decreased with a credit entry.

• Answer: False

• Rationale: Retained Earnings is an equity account representing accumulated net income. It increases with a credit (from net income) and decreases with a debit (from net losses or dividends).

Question 18

Revenues ultimately increase equity, which is why revenue accounts have a normal credit balance.

• Answer: True

• Rationale: Revenues increase Net Income, which flows into Retained Earnings (Equity). Because equity increases with a credit, revenues also carry a normal credit balance to mirror this positive impact.

Question 19

A net loss during the fiscal year decreases Retained Earnings via a debit entry.

• Answer: True

• Rationale: A net loss reduces the company’s equity. Reductions in equity accounts are always achieved through a debit entry.

Question 20

Treasury Stock is a contra-equity account and carries a normal debit balance.

• Answer: True

• Rationale: Treasury Stock represents shares that a company buys back from investors, reducing total equity. As a contra-equity account, it carries a normal debit balance.

Part 5: Revenue & Expense Accounts

Question 21

An increase in Service Revenue is recorded with a debit.

• Answer: False

• Rationale: Service Revenue is a revenue account. All revenue accounts increase with a credit entry and decrease with a debit entry.

Question 22

Expenses carry a normal debit balance because they decrease owner’s equity.

• Answer: True

• Rationale: Equity decreases with a debit. Since expenses naturally reduce net income and total equity, they must carry a normal debit balance.

Question 23

When a company records Rent Expense, it credits the Rent Expense account.

• Answer: False

• Rationale: Recording or increasing an expense requires a debit entry. The credit entry usually goes to Cash or Accounts Payable.

Question 24

A debit to Interest Revenue will increase the balance of that account.

• Answer: False

• Rationale: Interest Revenue is a revenue account. Debiting a revenue account decreases its balance. To increase it, you must credit it.

Question 25

Cost of Goods Sold (COGS) is an expense account and carries a normal debit balance.

• Answer: True

• Rationale: COGS represents the direct cost of producing or purchasing goods sold by a business. It is a major expense account and therefore carries a normal debit balance.

Part 6: Analyzing Transactions

Question 26

Purchasing office supplies on credit results in a debit to Supplies and a credit to Accounts Payable.

• Answer: True

• Rationale: Supplies (an asset) increases with a debit, and Accounts Payable (a liability) increases with a credit since the purchase was made on credit.

Question 27

When a customer pays cash for services to be performed next month, the company debits Cash and credits Service Revenue.

• Answer: False

• Rationale: Because the service has not yet been performed, the revenue cannot be recognized. The company must credit Unearned Revenue (a liability), not Service Revenue.

Question 28

Providing a service to a client on account involves a debit to Accounts Receivable and a credit to Service Revenue.

• Answer: True

• Rationale: The asset Accounts Receivable increases (debit) because the customer owes money, and Service Revenue increases (credit) because the service has been successfully completed.

Question 29

Paying cash to purchase a delivery truck involves a debit to Delivery Truck and a credit to Cash.

• Answer: True

• Rationale: This is an asset acquisition. The new asset (Delivery Truck) increases with a debit, and the cash used to pay for it decreases with a credit.

Question 30

When a company receives a utility bill but decides to pay it next month, no journal entry is made until the cash is paid.

• Answer: False

• Rationale: Under accrual accounting, expenses are recognized when incurred. The company must debit Utility Expense and credit Utilities Payable immediately when the bill is received.

Part 7: Adjusting & Closing Entries

Question 31

Adjusting entries are necessary to align financial records with the accrual basis of accounting.

• Answer: True

• Rationale: Adjusting entries ensure that revenues are recorded when earned and expenses when incurred, correcting account balances before financial statements are built.

Question 32

The adjusting entry to record depreciation involves a debit to Depreciation Expense and a credit to Accumulated Depreciation.

• Answer: True

• Rationale: Depreciation Expense increases with a debit, and the contra-asset Accumulated Depreciation increases (becoming more negative against the asset) with a credit.

Question 33

Closing entries are performed to reset permanent accounts to zero at the end of the year.

• Answer: False

• Rationale: Closing entries reset temporary accounts (revenues, expenses, and dividends) to zero. Permanent accounts (assets, liabilities, and equity) carry their balances forward into the next year.

Question 34

To close a revenue account with a credit balance, you must credit the Income Summary account and debit the Revenue account.

• Answer: True

• Rationale: To bring a revenue account balance to zero, you perform an opposite entry (debit the revenue). The matching credit is sent to the temporary Income Summary account.

Question 35

The Income Summary account is a permanent account that appears on the Balance Sheet.

• Answer: False

• Rationale: Income Summary is a temporary clearing account used strictly during the closing process. It is completely closed out to Retained Earnings and never appears on financial statements.

Part 8: Advanced Scenarios & Contra Accounts

Question 36

Sales Returns and Allowances is a contra-revenue account with a normal debit balance.

• Answer: True

• Rationale: Since it offsets gross sales revenue, it acts opposite to revenue. Revenues increase with credits, so a contra-revenue account increases with a debit balance.

Question 37

Allowance for Doubtful Accounts is a liability account because it represents money we might lose.

• Answer: False

• Rationale: Allowance for Doubtful Accounts is a contra-asset account linked directly to Accounts Receivable, carrying a normal credit balance to estimate uncollectible balances.

Question 38

A credit to the Gain on Sale of Assets account increases the company’s net income.

• Answer: True

• Rationale: Gains function similarly to revenues; they increase equity and carry a normal credit balance. Crediting a gain increases its value and pushes net income up.

Question 39

When an asset value drops due to an impairment, the loss account is credited.

• Answer: False

• Rationale: Impairment losses are treated like expenses; they reduce equity. Therefore, any loss account is increased via a debit entry.

Question 40

Discount on Bonds Payable is a contra-liability account that carries a normal debit balance.

• Answer: True

• Rationale: It reduces the carrying value of Bonds Payable (a liability). Because liabilities increase with a credit, a contra-liability account must carry a normal debit balance.

Part 9: Error Analysis & Ledger Dynamics

Question 41

Posting a credit to Accounts Payable as a credit to Accounts Receivable will keep the trial balance in balance.

• Answer: True

• Rationale: The entry still records a credit on the credit side. Even though the wrong account was chosen, total debits will still match total credits in the ledger summary.

Question 42

If a ledger entry is made completely backwards (debit instead of credit and vice versa), the trial balance will be out of balance.

• Answer: False

• Rationale: The trial balance will still balance because the dollar amounts of debits and credits remain equal, despite being posted to completely incorrect sides of the ledger.

Question 43

An account with a normal debit balance can occasionally carry a credit balance due to specific situations.

• Answer: True

• Rationale: Yes, for example, if a company overpays a vendor, its Accounts Payable (normally credit) can turn into a temporary debit. Similarly, an overdrawn checking account can cause Cash (normally debit) to show a credit balance.

Question 44

The ledger is the book of original entry where transactions are first recorded chronologically.

• Answer: False

• Rationale: The Journal is the book of original entry where transactions are written down chronologically. The Ledger is where those entries are later sorted and posted by specific accounts.

Question 45

A compound journal entry is an entry that involves more than two accounts, but total debits must still equal total credits.

• Answer: True

• Rationale: Compound entries happen often (e.g., purchasing an asset with a partial cash down-payment and a loan). Regardless of account depth, total debits must equal total credits.

Part 10: Summary Mastery

Question 46

The left side of any T-account is called the credit side.

• Answer: False

• Rationale: The left side is universally the debit side, while the right side is the credit side.

Question 47

An increase in Sales Tax Payable requires a credit entry.

• Answer: True

• Rationale: Sales Tax Payable is a liability account tracking money owed to the government. Liabilities increase with credits.

Question 48

The normal balance of an account is always the side that increases the account.

• Answer: True

• Rationale: By definition, an account’s “normal balance” is simply the entry side (debit or credit) that causes that specific account classification to expand.

Question 49

When a company borrows money, its assets and liabilities increase simultaneously.

• Answer: True

• Rationale: Borrowing cash increases Cash (debit asset) and increases Notes Payable (credit liability), perfectly maintaining equation equilibrium.

Question 50

All accounts closing to the Income Summary are permanent balance sheet accounts.

• Answer: False

• Rationale: Only temporary accounts (income statement accounts like revenues and expenses) close to Income Summary. Permanent accounts are never closed.

 

Debit and Credit Quiz: True or False Questions Mastering the Fundamentals of Accounting

Questions 1–10: Basic Concepts

1. In double-entry bookkeeping, every transaction must affect at least two accounts. Answer: True Explanation: This is the foundation of double-entry accounting. Every transaction has a dual effect, ensuring the accounting equation (Assets = Liabilities + Equity) remains balanced. For example, buying equipment for cash increases Equipment (debit) and decreases Cash (credit).

2. Assets are increased by credits and decreased by debits. Answer: False Explanation: Assets follow the rule: Debit to increase, Credit to decrease. Common mistake: confusing this with liabilities. Example: Receiving cash debits the Cash account (increase).

3. The normal balance of a liability account is credit. Answer: True Explanation: Liabilities increase with credits. When a business borrows money, it credits Notes Payable. The normal balance is the side on which the account naturally increases.

4. Revenue accounts are increased by debits. Answer: False Explanation: Revenues increase equity, so they are recorded with credits. Debiting revenue would incorrectly decrease it. Example: Service performed on credit → Debit Accounts Receivable, Credit Service Revenue.

5. Expenses have a normal debit balance. Answer: True Explanation: Expenses reduce equity and are recorded as debits. At the end of the period, they are closed by crediting the expense accounts.

6. Owner’s Capital is increased by debits. Answer: False Explanation: Owner’s equity (Capital) increases with credits (investments and profits) and decreases with debits (withdrawals and losses).

7. Debit means “left” and Credit means “right” in T-accounts. Answer: True Explanation: In standard T-account format, the left side is always debit and the right side is credit. This visual helps in understanding postings.

8. A contra-asset account has a normal debit balance. Answer: False Explanation: Contra-asset accounts (e.g., Accumulated Depreciation) have a credit balance to reduce the related asset. They appear as a credit balance in the trial balance.

9. The accounting equation is maintained because total debits always equal total credits. Answer: True Explanation: This equality is what keeps the books balanced after every transaction.

10. All accounts can have either debit or credit as their normal balance. Answer: False Explanation: Each account type has a standard normal balance: Assets & Expenses (Debit), Liabilities, Equity & Revenues (Credit).

Questions 11–20: Journal Entries

11. Purchasing supplies on account is recorded by debiting Supplies and crediting Accounts Payable. Answer: True Explanation: Asset increases (debit), liability increases (credit). This correctly reflects the transaction without affecting cash.

12. Receiving cash in advance for future services is recorded as a debit to Cash and a credit to Service Revenue. Answer: False Explanation: It should be credited to Unearned Revenue (liability), not revenue. Revenue is only recognized when earned.

13. Paying salaries to employees is recorded by debiting Salaries Expense and crediting Cash. Answer: True Explanation: This increases expense and decreases the asset Cash — a typical operating transaction.

14. When the owner invests cash in the business, we debit Owner’s Capital and credit Cash. Answer: False Explanation: It is Debit Cash (asset increase) and Credit Owner’s Capital (equity increase).

15. Selling goods on credit is recorded by debiting Sales Revenue and crediting Accounts Receivable. Answer: False Explanation: Correct entry is Debit Accounts Receivable, Credit Sales Revenue.

16. Collecting cash from a customer who owed money decreases Accounts Receivable with a credit. Answer: True Explanation: Debit Cash, Credit Accounts Receivable. This is just a conversion between two assets.

17. Recording depreciation involves debiting Accumulated Depreciation and crediting Depreciation Expense. Answer: False Explanation: Correct entry is Debit Depreciation Expense, Credit Accumulated Depreciation.

18. Owner withdrawals are recorded by debiting Drawings (or Owner’s Withdrawal) and crediting Cash. Answer: True Explanation: This reduces equity through a contra-equity account.

19. Borrowing money from a bank is recorded by debiting Cash and crediting Loan Payable. Answer: True Explanation: Asset up, liability up.

20. Returning purchased goods to a supplier (on account) is recorded by debiting Accounts Payable and crediting Purchases/Inventory. Answer: True Explanation: This reduces both the liability and the asset/expense.

Questions 21–30: Trial Balance & Adjustments

21. In the trial balance, all asset accounts appear on the debit column. Answer: True Explanation: Because assets have debit normal balances.

22. A trial balance that balances guarantees that no errors have been made in the accounting records. Answer: False Explanation: It only proves debits equal credits. Errors like posting to the wrong account or omitting a transaction may still exist.

23. An adjusting entry for accrued salaries is Debit Salaries Expense, Credit Salaries Payable. Answer: True Explanation: This recognizes the expense incurred but not yet paid.

24. When unearned revenue is earned, we debit Unearned Revenue and credit Revenue. Answer: True Explanation: This moves the amount from liability to revenue.

25. Accumulated Depreciation usually has a debit balance. Answer: False Explanation: It has a credit balance as a contra-asset.

26. Revenue accounts appear on the credit side of the trial balance. Answer: True Explanation: Their normal balance is credit.

27. Closing entries are used to zero out permanent accounts. Answer: False Explanation: Closing entries zero out temporary accounts (revenues, expenses, drawings) and transfer net income/loss to Retained Earnings.

28. A debit balance in the Income Summary account after closing indicates a net loss. Answer: True Explanation: Expenses exceeded revenues.

29. The post-closing trial balance contains only permanent accounts. Answer: True Explanation: Temporary accounts are closed to zero.

30. Adjusting entries are optional in accrual accounting. Answer: False Explanation: They are essential to properly match revenues and expenses in the correct period.

Questions 31–40: Advanced & Mixed

31. Paying an account payable decreases both an asset and a liability. Answer: True Explanation: Debit Accounts Payable, Credit Cash.

32. Dividends are recorded by crediting Dividends and debiting Cash. Answer: False Explanation: Debit Dividends (or Retained Earnings), Credit Cash.

33. Interest earned but not received is recorded by debiting Interest Receivable and crediting Interest Revenue. Answer: True Explanation: Accrual basis recognition.

34. In the perpetual inventory system, purchasing inventory is debited to Purchases account. Answer: False Explanation: It is debited directly to Inventory.

35. Crediting Accounts Receivable increases assets. Answer: False Explanation: It decreases assets.

36. Recording bad debts using the allowance method involves debiting Bad Debt Expense and crediting Allowance for Doubtful Accounts. Answer: True Explanation: This estimates uncollectible accounts.

37. Revenues increase owner’s equity. Answer: True Explanation: Through the credit to revenue accounts, which eventually flow into equity.

38. Expenses are recorded on the credit side. Answer: False Explanation: Expenses are debited.

39. The rule “Debit the receiver, Credit the giver” applies to all transactions. Answer: False Explanation: This is only one of the personal account rules. There are separate rules for real and nominal accounts.

40. A credit to Retained Earnings usually occurs when closing net income. Answer: True Explanation: Debit Income Summary, Credit Retained Earnings (for profit).

Questions 41–50: Conceptual Understanding

41. Total debits must always equal total credits in every journal entry. Answer: True Explanation: This is the core rule of double-entry bookkeeping.

42. Drawings (owner withdrawals) increase owner’s equity. Answer: False Explanation: They decrease equity.

43. All liabilities have normal credit balances. Answer: True Explanation: Liabilities increase with credits.

44. Debiting a revenue account is the correct way to record earned revenue. Answer: False Explanation: Revenue is always credited when earned.

45. The expanded accounting equation includes Expenses as a deduction from equity. Answer: True Explanation: Equity = Capital + Revenues – Expenses – Drawings.

46. Bank service charges are recorded by debiting Cash and crediting Expense. Answer: False Explanation: Debit Expense, Credit Cash.

47. A transaction can affect only one side of the accounting equation. Answer: False Explanation: Every transaction affects the equation in a way that keeps it balanced.

48. Temporary accounts are also called nominal accounts. Answer: True Explanation: They include revenues, expenses, and withdrawals, which are closed at the end of each period.

49. Contra accounts always have the opposite normal balance of their related account. Answer: True Explanation: Example: Accumulated Depreciation (credit) vs. Equipment (debit).

50. Understanding debits and credits is essential only for beginners in accounting. Answer: False Explanation: Mastery of debits and credits is fundamental at all levels of accounting, auditing, and financial analysis. Errors here can lead to misstated financial statements.

 

 

Debit and Credit Quiz: 50 True/False Questions with Detailed Explanations