Accounting Transactions, Double Entry

Question 1

What is a transaction?

Answer 1

A transaction is an activity carried out by the business to provide goods and services in exchange for money.

Question 2

Distinguish between cash and credit transactions.

Answer 2

In cash transactions, cash from the purchase or sale is paid or received at the same time as the purchase or sale, while in credit transactions, cash from the purchase or sale is paid or received at a later date from the purchase or sale.

Question 3

State the accounting equation.

Answer 3

Assets = Liabilities + Owner’s Equity

Question 4

State the expanded accounting equation.

Answer 4

Assets = Liabilities + Capital – Drawings + Income – Expenses

Question 5

What are the rules of the double entry system?

Answer 5

• Every transaction has at least one debit and one credit entry.
• A minimum of two accounts are involved for each transaction.
• The total of debit must always be equal to the total of credit.

Question 6

Distinguish between a trade discount and a cash discount.

Answer 6

Trade discount is not recorded in the ledger but cash discount is recorded in the ledger.

Trade discount is given to encourage bulk purchases but cash discount is given to encourage early repayment of debts.

Trade discount is a deduction off the list price of goods while cash discount is a deduction off the invoiced amount or amount owed.