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Accounting I  Chapter 2

True/False
Indicate whether the sentence or statement is true or false.
 

 1. 

Businesses use accounts to summarize all the information pertaining to a single item.
 

 2. 

An accounting device used to analyze transactions is a T-Account.
 

 3. 

An amount recorded on the left side of a T-Account is a credit.
 

 4. 

The normal balance side of an asset account is based on the location of the account in the accounting equation.
 

 5. 

Each asset account has a normal debit balance.
 

 6. 

Each liability account has a normal credit balance.
 

 7. 

The balance of an account increases on the same side as the normal balance side.
 

 8. 

The balance of an account decreases on the side opposite teh normal balance side.
 

 9. 

Asset accounts increase on the credit side.
 

 10. 

Before a transaction is recorded in the records of a business, it is analyzed to determine which accounts are changed and how.
 

 11. 

Each transaction changes the balances of at least two accounts.
 

 12. 

A list of accounts used by a business is a chart of accounts.
 

 13. 

Cash is an asset with a normal credit balance.
 

 14. 

Capital is an owner’s equity account with a normal debit balance.
 

 15. 

When cash is paid for supplies, the supplies account is increased by a debit.
 

 16. 

Common accounting practice is to record withdrawals as debits directly in the owner’s capital account.
 

 17. 

The balance of a drawing account represents the total value of assets taken out of a business by the owner.
 

 18. 

An account that reduces a related account on a financial statement is a contra account.
 

 19. 

A drawing account is decreased by debits and increased by credits.
 

 20. 

The total debits and credits for a transaction do not have to be equal.
 

Multiple Choice
Identify the letter of the choice that best completes the statement or answers the question.
 

 21. 

A record summarizing all the information pertaining to a single item in the accounting equation is a (an)
a.
debit
c.
account
b.
credit
d.
T account
 

 22. 

In a T account, the debit side is the
a.
left side
c.
both a and b
b.
right side
d.
neither a or b
 

 23. 

The right side of the T account is the
a.
debit side
c.
normal balance side
b.
credit side
d.
equity side
 

 24. 

If an account is recorded on the side of a T account opposite the normal balance side, the account balance is
a.
increased
c.
unaffected
b.
decreased
d.
correct
 

 25. 

The normal balance side of an asset account is the
a.
debit side
c.
decrease side
b.
credit side
d.
right side
 

 26. 

When the owner invests cash in a business, the owner’s capital account is
a.
increased by a debit
c.
decreased by a debit
b.
increased by a credit
d.
decreased by a credit
 

 27. 

When a business pays for insurance, Prepaid Insurance is
a.
increased by a debit
c.
decreased by a debit
b.
increased by a credit
d.
decreased by a credit
 

 28. 

When a business buys an asset on one date and agrees to pay on a later date, the transaction is
a.
delayed
c.
increased
b.
on account
d.
none of the above
 

 29. 

When a business pays cash on account, a liability account is
a.
increased by a debit
c.
decreased by a debit
b.
increased by a credit
d.
decreased by a credit
 

 30. 

When cash is received from sales, the change in the owner’s equity is usually
a.
recorded in a separate revenue account
b.
recorded directly in the owner’s capital account
c.
recorded as interest revenue
d.
always recorded on the debit side
 

 31. 

When a business receives revenue, Sales is
a.
increased by a debit
c.
decreased by a debit
b.
increased by a credit
d.
decreased by a credit
 

 32. 

The amount paid for rent is recorded as a debit to
a.
Miscellaneous Expense
c.
Supplies
b.
Rent Expense
d.
Cash
 

 33. 

When cash is paid for rent, Rent Expense is
a.
increased by a debit
c.
decreased by a debit
b.
increased by a credit
d.
decreased by a credit
 

 34. 

When the owner withdraws cash, the owner’s drawing account is
a.
increased by a debit
c.
decreased by a debit
b.
increased by a credit
d.
decreased by a credit
 

 35. 

A contra capital account has a normal
a.
debit balance and is increased by a debit
b.
credit balance and is increased by a credit
c.
debit balance and is increased by a credit
d.
credit balance and is decreased by a credit
 

Matching
 
 
a.
Debit
c.
2 Accounts
b.
Credit
 

 36. 

The normal balance of an asset account is a (an) ______________.
 

 37. 

An asset account is increased by a (an) _____________.
 

 38. 

An asset account is decreased by a (an) _____________.
 

 39. 

The normal balance side of a liability account is a (an) ____________.
 

 40. 

A liability account is increased by a (an) _____________.
 

 41. 

A liability account is decreased by a (an) _____________.
 

 42. 

The normal balance of the owner’s capital account is a (an) ____________.
 

 43. 

The owner’s capital account is increased by a (an) ____________.
 

 44. 

Each transaction changes the balances of at least _________________.
 

 45. 

The normal balance of a revenue account is a (an) ______________.
 

 46. 

A revenue account is increased by a (an) ______________.
 

 47. 

The normal balance of an expense account is a (an) _______________.
 

 48. 

An expense account is increased by a (an) ______________.
 

 49. 

The normal balance of a drawing account is a (an) ______________.
 

 50. 

A drawing account is increased by a (an) _____________.
 



 
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