4 - Ledger accounting and double entry

Question 1

what is the nominal ledger

Answer 1

a collection of ledger accounts

each item in the statement of profit/loss will have a ledger account, for example sales/electricity expense

Question 2

what is the dual effect

Answer 2

double entry bookkeeping is based on the fundamental principle that every transaction has two effects on the business

cash sale of £200 = cash increases by £200, sales increase by £200

Question 3

what is the sales ledger control account

Answer 3

records the total owed by credit customers

credit customers sometimes referred to as trade receivables

Question 4

what is the purchase ledger control account

Answer 4

records the total amount owed to credit suppliers

credit suppliers sometimes referred to as trade payables

Question 5

how is a nominal ledger account (T-account) displayed

Answer 5

left side = DEBIT
right side = CREDIT

at all times, TOTAL DEBITS = TOTAL CREDITS

debit = money paid into the bank would require a debit entry

credit = money paid out of the bank would require a credit entry

dual effect = every debit must have equal credit in another ledger account

Question 6

debit and credit entry examples

Answer 6

DEBIT:
- increase in an asset
- item of expense
- increase in drawings
- decrease in liabilities, income or capital

CREDIT:
- increase in a liability/income/capital
- item of income
- increase in capital
- decrease in assets, expenses or drawings

Question 7

mnemonic to remember debits/credits

Answer 7

DEAD CLIC

Debits
Expenses
Assets
Drawings

Credits
Liabilities
Income
Capital

Question 8

what are main sources of income for a business

Answer 8

1. sales of goods/services
2. sundry income = interest paid and rent received