4 Sources of income tracking and controlling & revenue and expenditure

Question 1

Double-entry bookkeeping

Answer 1

Double-entry bookkeeping is a system of recording financial transactions in which each transaction is recorded in two accounts: one account is debited, and the other account is credited.

This system ensures that the accounts are always balanced and accurate. This method is used to track revenue and expenditure in an organisation.

Question 2

How credits and debits affect different accounts

Answer 2

Debits increase the balance of asset accounts, such as cash, accounts receivable and inventory.

For example, when a company receives cash, it records a debit to the cash account to reflect the increase in cash on hand.

Credits decrease the balance of asset accounts.

For example, when a company makes a payment from its cash account, it records a credit to the cash account to reflect the decrease in cash.

Question 3

How credits and debits affect different accounts

Answer 3

Liabilities
Debits decrease the balance of liability accounts, such as accounts payable, loans payable and accrued expenses.

For example, when a company pays off a portion of its accounts payable, it records a debit to the accounts payable account to reflect the decrease in the liability.

Credits increase the balance of liability accounts.

For example, when a company borrows money and incurs a new loan, it records a credit to the loans payable account to reflect the increase in the liability

Question 4

Equity

Answer 4

Debits decrease the balance of liability accounts, such as accounts payable, loans payable and accrued expenses.

For example, when a company pays off a portion of its accounts payable, it records a debit to the accounts payable account to reflect the decrease in the liability.

Credits increase the balance of liability accounts.

For example, when a company borrows money and incurs a new loan, it records a credit to the loans payable account to reflect the increase in the liability

Question 5

Revenue

Answer 5

Debits do not typically affect revenue accounts directly.

Revenue accounts are usually credited when the company earns income from providing goods or services to customers.

Question 6

Expenses

Answer 6

Debits increase the balance of expense accounts, such as expenditure on rent, salaries and utilities.

For example, when a company pays rent for its office space, it records a debit to the rent expense account to reflect the increase in expenses.

Credits decrease the balance of expense accounts.

For example, when a company accrues unpaid salaries for its employees, it records a credit to the salaries expense account to reflect the decrease in expenses.

Question 7

Reporting

Answer 7

Reporting is the process of providing financial information to stakeholders, including investors, creditors and management. Reporting includes balance sheets, profit and loss accounts/income statements, and other financial reports. These reports are used to track revenue and expenditure, and to monitor the financial health of the organisation.

Question 8

Reporting 2

Answer 8

Various tools and methods are used to generate financial reports, including accounting software, spreadsheets and in-house templates.

These tools help businesses to organise and present their financial data in a clear and understandable manner.