Double-entry Bookkeeping

In double-entry bookkeeping, which statement correctly describes the rule for recording an increase in an asset?

• A Debit the asset account ✓
• B Credit the asset account
• C Debit a liability account
• D Credit the capital account

Answer: Assets are increased by debit entries. The dual effect means every debit has a corresponding credit elsewhere in the ledger.

A business pays £500 cash to a supplier to settle an amount owed. What are the correct double entries?

• A Debit Purchases £500, Credit Bank £500
• B Debit Payables £500, Credit Bank £500 ✓
• C Debit Bank £500, Credit Payables £500
• D Debit Bank £500, Credit Purchases £500

Answer: Settling a payable reduces the liability (debit Payables) and reduces the asset cash (credit Bank). No expense is recorded because the purchase was already entered on credit.

Which of the following pairs represents the normal balances of expense and income accounts?

• A Expenses are credit balances; income accounts are debit balances
• B Both expenses and income are debit balances
• C Expenses are debit balances; income accounts are credit balances ✓
• D Both expenses and income are credit balances

Answer: Expense accounts normally carry debit balances and income (revenue) accounts normally carry credit balances. This follows the standard rules of double entry.

A business receives £200 cash from a credit customer. Which entry records the receipt?

• A Debit Receivables £200, Credit Bank £200
• B Debit Sales £200, Credit Bank £200
• C Debit Bank £200, Credit Receivables £200 ✓
• D Debit Bank £200, Credit Sales £200

Answer: Receiving cash increases the asset Bank (debit) and reduces the amount owed by the customer (credit Receivables). Sales is not credited again because it was recorded when the credit sale was made.

A business buys a delivery van for £12,000, paying by bank transfer. What are the correct double entries?

• A Debit Motor vehicles £12,000, Credit Bank £12,000 ✓
• B Debit Purchases £12,000, Credit Bank £12,000
• C Debit Motor vehicles £12,000, Credit Capital £12,000
• D Debit Bank £12,000, Credit Motor vehicles £12,000

Answer: Buying a non-current asset increases the asset Motor vehicles (debit) and decreases the asset Bank (credit). It is not a purchase of goods for resale.

The mnemonic DEAD CLIC helps recall which entries increase accounts. Which group is increased by a DEBIT?

• A Capital, Liabilities, Income
• B Drawings, Expenses, Assets ✓
• C Drawings, Income, Capital
• D Liabilities, Assets, Income

Answer: DEAD = Debits increase Expenses, Assets and Drawings. CLIC = Credits increase Liabilities, Income and Capital.