BOMI Budgeting And Accounting Practice Exam

What must accompany each transfer of cash transactions between the income statement and the balance sheet?

Debit and credit entries must accompany transfers Only a debit Only a credit Neither debit nor credit

Correct Answer:

Debit and credit entries must accompany transfers

Explanation:

This is about double-entry accounting. Every time cash moves between the balance sheet and an income statement item (or another balance sheet account), you must record both sides of the transaction. That means a debit and a credit of equal amounts. For example, receiving cash from a sale: you debit Cash (an asset on the balance sheet) and credit Revenue (an income statement item). Paying cash for an expense: debit the expense account and credit Cash. If you reduce a liability with cash, you debit the liability and credit Cash. In all cases, the entry has both a debit and a credit to keep the books balanced. Options that have only a debit, only a credit, or neither would violate this fundamental rule.

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