Accounting Summary

Question 1

How do you calculate Net Capital?

Answer 1

Net Capital - Drawings = Net Capital

Question 2

How do you calculate closing capital?

Answer 2

closing capital = opening capital + Profit (loss) + capital injections - drawings

Question 3

What is the accounting equation?

Answer 3

Assets = Capital + Liabilities

Question 4

How can you rewrite the capital equation?

Answer 4

Assets - Liabilities = Opening capital + profit + capital injections - drawings

Question 5

How do you calculate profits?

Answer 5

Assets - profits = opening capital + liabilities - drawings

Question 6

How do you account for a purchase of goods on credit?

Answer 6

Dr Purchases

Cr Cash / Trade Payables

Question 7

What does the SPL show?

Answer 7

Shows income less expenses over a period of time

Expenses > Income = Loss

Question 8

How do you account for sales?

Answer 8

Dr Cash
Cr Sales

Dr Trade Receivables (on credit)
Cr Sales

Question 9

What is DEAD CLIC?

Answer 9

Debit
Expense (SPL)
Asset (SOFP)
Drawings/Dividends (SOFP)

Credit
Liability (SOFP)
Income (SPL)
Capital (SOFP)

Question 10

How do you account for the sale of goods/inventory?

Answer 10

Dr Cash / Trade Receivables

Cr Sales Income

Question 11

What is the trial balance?

Answer 11

The trial balance is a list of all the closing balances

Question 12

How do you account for cash overdrawn?

Answer 12

Cash overdrawn is on the credit side. Rather than an asset it would therefore be a current liability.

Question 13

How do you account for a sales return?

Answer 13

Originally a credit transaction:

Dr Sales
Cr Trade Receivables

Originally a cash transaction:

Dr Sales
Cr Cash

Question 14

How do you account for a purchase return?

Answer 14

Originally a credit transaction:

Dr Trade Payables
Cr Purchases

Originally a cash transaction:

Dr Cash
Cr Purchases

Question 15

How do you account for an early settlement discount on purchases that requires NO adjustment?

Answer 15

On purchase:

Dr Purchases
Cr Payables

On settlement:

Dr Payables
Cr Cash

Question 16

How do you account for an early settlement discount if they expect to take advantage but do not pay in time?

Answer 16

If they either expect to take advantage but do not pay in time:

On purchase:

Dr Purchases
Cr Payables

On settlement:

Dr Payables (cost inclusive of discount)
Cr Cash (actual cost without discount)
Dr Purchases (discount charge)

Question 17

How do you account for an early settlement discount if they do not expect to take advantage but subsequently pay in time?

Answer 17

On purchase:

Dr Purchases (non-discounted price)
Cr Payables (non-discounted price)

On Settlement:

Dr Payables (non-discounted price)
Cr Cash (discounted price)
Cr Purchases (discount total)

Question 18

How do you calculate total staff costs?

Answer 18

Total staff costs are the Gross salary and the Employer’s National Insurance Contribution (NICS)

Gross salaries + employer’s NICs = total staff costs

Question 19

How do you calculate what is paid to the employee and what is paid to the government? (Payroll)

Answer 19

Paid to the employee = Gross salary - Net salary

Paid to the government = Total staff costs - (income tax + Employee’s National Insurance Contributions (NICs)

Question 20

What is the correct accounting for payroll?

Answer 20

Dr Wages and Salaries (gross salary + employer’s NICs)
Cr Cash (net salary paid to employee)
Cr Income Tax (PAYE + employee’s NICs + employer’s NICs)

Question 21

What is income tax?

Answer 21

The income tax account is a payable account which is shown as a current liability on the SOFP