4. Ledger Accounting & Double Entry

Question 1

where is information from source documents recorded

Answer 1

in ledger accounts

Question 2

what are the various types of ledgers

Answer 2

nominal ledger
receivables ledger
payables ledger

Question 3

what is VAT

Answer 3

a consumer expenditure tax

value added tax

Question 4

what is ledger accounting

Answer 4

the process by which a business keeps a record of its transactions

Question 5

what are the two ways ledger accounting keeps a record of its transactions

Answer 5

in chronological order

built up in cumulative totals

Question 6

what is the nominal ledger

Answer 6

the main accounting record in which accounting transactions are recorded

Question 7

which accounts are included in the nominal ledger

Answer 7

plant & machinery
inventories
sales
rent
trade payables

Question 8

what is the basic principle of bookkeeping

Answer 8

dual effect

Question 9

what is double entry bookkeeping

Answer 9

every accounting transaction has two equal but opposite effects

equality of assets and liabilities are preserved

Question 10

how are events accounted for in a system of double entry bookkeeping

Answer 10

every accounting event must be entered into the general ledger accounts as a debit and as an equal but opposite credit

Question 11

what are debit scenarios

Answer 11

an increase in an expense
an increase in an asset
a decrease in a liability

Question 12

what are credit scenarios

Answer 12

an increase in income
an increase in a liability
a decrease in an asset

Question 13

when cash is received by a company, does a debit or credit to the cash account take place?

Answer 13

debit

Question 14

when cash is paid out by a company, does a debit or a credit to the cash account take place?

Answer 14

credit

Question 15

what is the format of a journal entry

Answer 15

date, debit a/c, credit a/c, entry description

Question 16

j/e for petty cash?

Answer 16

debit petty cash

credit cash

description - petty cash is topped up to a particular balance, the ‘imprest’ amount

Question 17

what is the purpose of the receivables and payables ledgers?

Answer 17

to keep track of individual customer and supplier balances

Question 18

what does each account in the payables and receivables ledger represent

Answer 18

money owed by/to the company

Question 19

do receivables and payables ledgers for part of the double entry system?

Answer 19

no

Question 20

in a computerised accounting system, when are receivables/payables ledgers updated?

Answer 20

automatically when an entry is made against trade receivables or trade payables in then nominal ledger

Question 21

what is a discount

Answer 21

a reduction in the price of goods or services

Question 22

what is the initial price of a good/service called?

Answer 22

list price

Question 23

what are the two classes of discount?

Answer 23

trade discount
early settlement discount

Question 24

what is a trade discount

Answer 24

a discount granted to regular customers, usually those buying in bulk

Question 25

what is early settlement discount

Answer 25

a discount granted to credit customers who pay within a specified period from the invoice date

Question 26

how are early settlement discounts accounted for?

Answer 26

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

Question 27

how are trade discounts accounted for

Answer 27

they're deducted from revenue or purchases at the point of the invoice

Question 28

what is VAT

Answer 28

an indirect tax levied on the sale of goods and services

Question 29

what are two facts about VAT

Answer 29

administered by HMRC can have a number of rates (e.g., standard rate, reduced rate)

Question 30

what are the two types of VAT

Answer 30

input & output VAT

Question 31

what is output VAT?

Answer 31

sales tax charged by the business on goods/services

Question 32

what is input VAT?

Answer 32

sales tax on purchases made by the business

Question 33

do trade receivables' balances include VAT

Answer 33

yes, as it represents the total amount due to be received from customers

Question 34

where is VAT recorded?

Answer 34

separately in the VAT account

Question 35

do trade payables' balances include VAT

Answer 35

yes, as it represents the total amount due to be paid to suppliers

Question 36

if a company sold goods on credit for £3480 including VAT at 20%, how's this accounted for?

Answer 36

debit trade receivables - 3480 credit revenue - 2900 credit VAT - 580