Bookkeeping

Question 1

Three main principles

Answer 1

1. Dual effect
2. Separate entity concept
3. Accounting equation

Question 2

Dual effect principle and car scenario

Answer 2

Every transaction will have at least TWO effects

one asset goes up, one asset goes down

Business buys a car
Business sells goods for cash
Business sells goods on credit

Question 3

Separate entity concept

Answer 3

A business entity is separate from its owner(s)
The activities of the business should be kept separate from the activities of the owner(s)

Question 4

Ledger

Answer 4

A ledger is just a book and a ledger account is just a page in that book

Question 5

The Nominal Ledger

Answer 5

• (aka general ledger) has a page (an account) for every item that appears on the Balance Sheet or Income Statement (Profit and Loss account).
• Each page (account) has two columns: a debit side on the left and a credit side on the right. Each page is often referred to as a “T” account

Question 6

Debits and Credits

Every transaction is recorded twice in the nominal ledger

The way to remember what goes where is?

Answer 6

DEADCLIC

Debit if increase in…
Expense
Asset
Drawings

Credit if increase in…
Liability
Income
Capital

Question 7

The accounting equation and the dual effect

Answer 7

Every transaction has two effects on the accounting equation

If assets increase, then liabilities or capital must increase or another asset must fall.

Question 8

Sally invests £3,000 in the business, what will increase?

Answer 8

Assets and Capital will increase by £3000

Question 9

Sally buys £2,600 (from the £3000) of cooking utensils, what is the result?

Answer 9

Cash asset falls by £2600 so its now £400
Other assets increase by £2600

Assets = Liabilities + Capital

Cash 400
Utensils 2600
Total 3000 = 0 + 3000

Question 10

Sally makes a profit of £200. What is the result?

Answer 10

Profit made is £200 so capital increases by 200

Question 11

Sally takes £150 cash for herself from the business bank account. What is the result?

Answer 11

Cash and capital fall by £150
It is classed as Drawings

Question 12

What is the accounting equation and what does each part mean

Answer 12

Assets = Liabilities + Capital

Assets = Something the business owns

Liabilities = Something the business owes to a third party

Capital = Something the business owes to the owner

Question 13

If a business makes it a loss, it comes off..?

Answer 13

Both assets and capital

Question 14

Fill in the debits and credits

Answer 14