4. Ledger Accounting & Double Entry Flashcards
where is information from source documents recorded
in ledger accounts
what are the various types of ledgers
nominal ledger
receivables ledger
payables ledger
what is VAT
a consumer expenditure tax
value added tax
what is ledger accounting
the process by which a business keeps a record of its transactions
what are the two ways ledger accounting keeps a record of its transactions
in chronological order
built up in cumulative totals
what is the nominal ledger
the main accounting record in which accounting transactions are recorded
which accounts are included in the nominal ledger
plant & machinery
inventories
sales
rent
trade payables
what is the basic principle of bookkeeping
dual effect
what is double entry bookkeeping
every accounting transaction has two equal but opposite effects
equality of assets and liabilities are preserved
how are events accounted for in a system of double entry bookkeeping
every accounting event must be entered into the general ledger accounts as a debit and as an equal but opposite credit
what are debit scenarios
an increase in an expense
an increase in an asset
a decrease in a liability
what are credit scenarios
an increase in income
an increase in a liability
a decrease in an asset
when cash is received by a company, does a debit or credit to the cash account take place?
debit
when cash is paid out by a company, does a debit or a credit to the cash account take place?
credit
what is the format of a journal entry
date, debit a/c, credit a/c, entry description
j/e for petty cash?
debit petty cash
credit cash
description - petty cash is topped up to a particular balance, the ‘imprest’ amount
what is the purpose of the receivables and payables ledgers?
to keep track of individual customer and supplier balances
what does each account in the payables and receivables ledger represent
money owed by/to the company
do receivables and payables ledgers for part of the double entry system?
no
in a computerised accounting system, when are receivables/payables ledgers updated?
automatically when an entry is made against trade receivables or trade payables in then nominal ledger
what is a discount
a reduction in the price of goods or services
what is the initial price of a good/service called?
list price
what are the two classes of discount?
trade discount
early settlement discount
what is a trade discount
a discount granted to regular customers, usually those buying in bulk
what is early settlement discount
a discount granted to credit customers who pay within a specified period from the invoice date
how are early settlement discounts accounted for?
they’re deducted from revenue when offered to credit customers at the point of the invoice
they’re deducted from purchases when received from credit suppliers at the point of the invoice
how are trade discounts accounted for
they’re deducted from revenue or purchases at the point of the invoice
what is VAT
an indirect tax levied on the sale of goods and services
what are two facts about VAT
administered by HMRC
can have a number of rates (e.g., standard rate, reduced rate)
what are the two types of VAT
input & output VAT
what is output VAT?
sales tax charged by the business on goods/services
what is input VAT?
sales tax on purchases made by the business
do trade receivables’ balances include VAT
yes, as it represents the total amount due to be received from customers
where is VAT recorded?
separately in the VAT account
do trade payables’ balances include VAT
yes, as it represents the total amount due to be paid to suppliers
if a company sold goods on credit for £3480 including VAT at 20%, how’s this accounted for?
debit trade receivables - 3480
credit revenue - 2900
credit VAT - 580
