(2) The Recording Process

Question 1

Describe the general journal.

Answer 1

The general journal provides a chronological list of all of the transactions for a business. It discloses in one place the complete effect of a transaction which helps to prevent or locate errors.

Question 2

Describe the general ledger.

Answer 2

The ledger accumulates all the information about changes in specific account balances such as sales revenue, cash, and wages expense.

A general ledger contains all the assets, liabilities and equity accounts

Question 3

What are the 3 basic steps in the recording process?

Answer 3

1. Analyse the transactions in terms of its effect on the accounts
2. Enter the transaction information in a journal
3. Transfer the journal information to the appropriate accounts in the ledger (this is called posting)

Question 4

What is posting?

Answer 4

Posting is the procedure of transferring journal entries to ledger accounts. It accumulates the effects of journalised transactions in the individual ledger accounts.

Question 5

What does the tick in the general journal signify?

Answer 5

The tick signifies that the entry has now been posted to the ledger.

Question 6

What does cross-reference mean?

Answer 6

Cross-reference is where the ledger account to which the credit entry will be posted has been entered. It is very useful as it provides additional information on each amount recorded in an individual ledger account.

Question 7

What purposes do cross-references serve?

Hint: there are 2

Answer 7

1. They indicate the corresponding ledger accounts to which the entries are posted
2. At a glance, they provide information on the nature of each transaction in the ledger account

Question 8

What is a trial balance?

Answer 8

A trial balance is a list of accounts and their balances at a given time.

It is prepared at the end of an accounting period.

The accounts are listed in the order in which they appear in the ledger.

Question 9

What is the main purpose of a trial balance?

Answer 9

To prove the mathematical equality of debits and credits after posting.

Question 10

What are the procedures for preparing a trial balance?

Hint: there are 3

Answer 10

1. List the account numbers, names and their balances
2. Total the debit and credit columns
3. Verify the equality of the two columns

Question 11

Limitations of a trial balance.

Answer 11

It does not guarantee that all transactions have been recorded or that the ledger is correct.

Trial balance may balance even when:

• a transaction is not journalised
• a correct journal entry is not posted
• a journal entry is posted twice
• incorrect accounts are used in journalising or posting
• incorrect amounts journalised / posted

Question 12

What is the expanded basic accounting equation?

Answer 12

Assets = Liabilities + Share Capital + Beginning retained earnings - Dividends + Revenues - Expenses

Question 13

How do you calculate retained earnings?

*Equity is comprised of share capital and retained earnings.

Answer 13

Retained earnings = beginning balance in retained earnings + profit(loss) - dividends

Question 14

What is a dividend?

Answer 14

A dividend is a distribution by a company to its shareholders in an amount proportional to each investor’s percentage ownership.

Dividends result in a reduction of the shareholders’ claims on retained earnings.

Dividends account normally has a debit balance as it reduces equity.