AC 2-4

Question 1

What is the business entity concept?

Answer 1

This is that the owner is separate from the business

Question 2

What is capital also known as?

Answer 2

Net assets

Question 3

What is the accounting equation?

Answer 3

Assets - liabilities = opening capital + profit + capital injections - drawings

OP CID

Question 4

Where does profit go?

Answer 4

If profit is made then capital increases

Question 5

What are the steps to record a transaction?

Answer 5

1. Identify the two affected accounts.
2. Are the increasing or decreasing
3. Should they be debit or credit?
4. Does it balance?

Question 6

How do you balance ledgers?

Answer 6

1. Which total is higher
2. Make this the total on both sides.
3. Add balance c/f to side with less
4. Add balance b/f to side with more

Question 7

What does a trial balance show?

Answer 7

The trial balance shows all the balances brought forward

Question 8

If something is bought the £10 cash, and then returned what happens (think of double entry)

Answer 8

For the sale, you debit cash and credit sales

For the return, you debit sale and credit cash

Question 9

If Harry expects a 5% discount on £30,000 credit when paying within 10 days, but misses the period what does the double entry look like?

Answer 9

Initial purchase:
Dr purchase (28,500)
Cr payable (28,500)

Correction:
Dr payable (28,500)
Cr cash (30,000)
Dr purchases (1500) i.e. difference

Question 10

What is included in the total payment by employers?

Answer 10

Total payment= gross salary + employer NICs

Question 11

What is the formula for net salary?

Answer 11

Net salary= amount received + PAYE + employer NIC + employee NIC