3. Double Entry System

Question 1

Transactions

Answer 1

Transactions are events that affect the operations or

finances of an entity

Question 2

Transaction Analysis

Answer 2

Transaction analysis involves an examination of each business transaction with the aim of understanding its effect on elements of balance sheets (i.e. A, L, and E) and income statements (i.e. Rev and Exp)

Question 3

Journal Entries

Answer 3

Journal entry is a shorthand version on transaction analysis, they are prepared using the rules of debit and credit. It affect both debit and credit account and the amount must be balanced.

Question 4

Depreciation

Answer 4

Depreciation is the allocation of the cost of a non-current asset to expense over the life of an asset

Question 5

Deferred Revenue

Answer 5

The payments that a business receives in advance for goods or services that haven’t yet been delivered.

Question 6

Double-entry Accounting System

Answer 6

A+ Exp = L + E+ Rev

Question 7

Debit

Answer 7

• Assets
• Dividends
• Expenses
• increase with debits, decrease with credits

Question 8

Credit

Answer 8

• Liabilities
• Shareholder’s equity
• Revenue
• decrease with debits, increase with credits

Question 9

Journal Entries

Answer 9

The record of financial transactions.

Process:

1. Collect and sort all source documents for each financial transaction (e.g. receipts and invoices )
2. Record and post the relevant data from each source document (Which accounts are affected ? Did accounts go up or down? )

Question 10

Revenue

Answer 10

Revenue is the income earned from the sale of goods and or the provision of services. —- only accrual basis

• Revenue is recognised when it’s earned, not when cash is received.
• e.g. Scenario 1 — deferred revenue, payment is paid in advance. Paid in advance doesn’t count, you have to trade the product and receive the earning
• Scenario 2—- accrued revenue, when the service is being provided before the payment in the future. Revenue is recognised when the service is being provided.