Basic Accounting Course Notes- Revision Review

Question 1

What is capital?

Answer 1

Capital represents the amount that a business owes to its owner (p. 9)

Question 2

What does the cash payments book include? (2)

Answer 2

1. Cash purchases

2. Payments made to credit suppliers (p. 11)

Question 3

What are ‘drawings’?

Answer 3

The funds withdrawn by the owner from the business for private use (p. 11)

Question 4

What does the sales day book include? (1)

Answer 4

Credit sales (p. 12)

Question 5

Is the purchase day book for a) credit purchases, or b) cash purchases?

Answer 5

a) credit purchases (p. 13)

Question 6

Cash transactions go into which three books?

Answer 6

1) cash receipts book
2) petty cash book
3) cash payments book (p. 14)

Question 7

Credit transactions go into which two books?

Answer 7

1) Sales day book

2) Purchase day book (p. 14)

Question 8

What is a nominal ledger?

Answer 8

A large book containing a number of titled accounts (p. 15)

Question 9

What are ledger accounts often referred to in bookkeeping?

Answer 9

‘T’ accounts (p. 15)

Question 10

Define double entry bookkeeping

Answer 10

A method used to transfer weekly/monthly totals from books of prime entry into the nominal ledger (p. 16)

Question 11

Define the ‘dual effect’

Answer 11

The idea that every transaction has two effects (p. 16)

Question 12

What is the difference between assets and liabilities?

Answer 12

Assets are things that we own. Liabilities are amounts that we owe to others (p. 17)

Question 13

DEAD CLIC is suggested as an acronym for memorising the double entry rule. What does it stand for?

Answer 13

Debits Increase
Expenses
Assets
Drawings

Credits increase
Income
Liabilities
Capital (p. 19)

Question 14

What are receivables?

Answer 14

Money owed to the owner by customers (p. 5)

Question 15

What are the ‘books of prime entry’?

Answer 15

The first place that a business records it’s transactions, which are essentially lists of transactions organised into categories (p. 14)

Question 16

How does one “balance off the accounts “? (4)

Answer 16

1) add up each side of the bank account
2) fill in the higher if the two as the totals on both sides of the account
3) ‘Balance’ the account by slotting in the missing figure on the side which is ‘lacking’ to make both sides equal
4) complete the double entry by inserting the balancing figure again on the opposite side of the account beneath totals (p. 34)

Question 17

What is the purpose of the trial balance?

Answer 17

To confirm that total debit balances equal the total credit balances (p. 35)

Question 18

What four errors will a trial balance pick up?

Answer 18

1) single entry error
2) transposition error (eg £346 in cash account but £364 in the sales account)
3) adding error
4) errors of principle (both sides of an entry as debits or both sides as credits) (p. 36)

Question 19

What four errors will a trial balance not pick up?

Answer 19

1) errors of omission
2) errors of commission (placing a debit or credit entry in the wrong account)
3) compensating errors (both debits and credits are recorded incorrectly, but where the error is of the same amount) (p. 36)

Question 20

What are payables?

Answer 20

Money owed to whomever by the owner (p. 5)