4 - Ledger accounting and double entry

Question 1

What is another name for a ledger?

Answer 1

T account

Question 2

What is a nominal/general ledger?

Answer 2

It groups together all the individual T accounts

Question 3

What is dead clic?

Answer 3

Debit : Expenses, Assets, Drawings (increases)

Credit: Liabilities, Income, Capital (increases)

DEAD increase decreases CLIC
CLIC increase decreases DEAD

Question 4

What is the narrative?

Answer 4

It is the other side:
Lets say you buy paper for 50 quid
Ur cash decreases but in the narrative you put purchase expense.

Question 5

What are the sales and purchases day book?

Answer 5

They are used for any credit sale or purchase

Question 6

What is a trade discount?

Answer 6

A reduction in the cost of goods usually from bulk buying

It is deducted from the list price in arriving at the sales/purchases figure for double entry purposes

Question 7

What is an early settlement (or cash) discount?

Answer 7

A reduction in the amount payable in return for immediate or early payment in cash

Initial sales/purchases is recorded NET of early settlement discount if it is expected to be taken. Otherwise it is recorded ignoring the early settlement discount

If behaviour is then not as expected, the accounts are adjusted accordingly at the point of cash receipt or payment

Question 8

What are journal entries?

Answer 8

Can be used to record any business transactions but are usually used to record unusual or one off transactions, often part of the final adjustments to prepare the accounts

Question 9

Who is VAT applicable for?

Answer 9

Non registered businesses do not charge and can not recover VAT

Registered Businesses:
Exempt activities u do not charge and can not recover VAT
Taxable activities can recover VAT - Standard rate 20%, Reduced rate 5% of domestic fuel, Zero rates, books eggs cakes etc

Question 11

When should you include and exclude VAT?

Answer 11

Income and expenses should exclude VAT

Trade receivables and payables should include VAT (Liability in SFP)

Credits represent amounts owed to HMRC (a current liability)
Debits represent amounts owed from HMRC (a current asset)

If VAT can’t be recovered (non registered business or exempt activities) then the income and expenses will include VAT as this becomes a real cost to the business

VAT on certain purchases is NEVER recoverable, cars (not lorries or vans) and business entertaining

Gross includes VAT (trade receivables and payables)
Net excludes VAT (sales, purchases, most expenses)