Cash Account, Ledgers And Trial Balance

Question 1

Sales

Answer 1

money received when a business sells goods
which are part of its normal day to day business activity.
e.g. the money cadburys receives from selling curly wurly bars

Question 2

Purchases

Answer 2

goods a business buys and plan to resell as part of its normal day to day business activity. E.g. cadburys buys sugar and cocoa beans to make the chocolate that it sells.

Question 3

VAT

Answer 3

is tax on goods and services. It is charged at every stage of the buying and selling process.
E.g. VAT is charged on the sugar that cadburys buys and VAT is included in the price consumers pay in the shop for a Curly Wurly.

Question 4

Capital

Answer 4

money that the business has received from shareholders (Share Capital) or money that the owners have put into the business themselves.

Question 5

General Ledger

Answer 5

Used to record all transactions that have happened in the day to day running of the business. The general ledger brings together:

● all transactions involving a specific person or
● all transactions involving a specific income/expense

Question 6

Double Entry Bookkeeping

Answer 6

means that every transaction must be entered twice. Every Debit Entry has a matching Credit Entry. This is because in every transaction one account is giving something and another account is receiving something.

Example:
ABC Ltd pays its electricity bill from its bank account by cheque.
Bank Account is giving money (Credit) Electricity Account is receiving money (Debit)

Question 7

Trial Balance:

Answer 7

is a list of all closing balances taken from the ledgers and analysed cash book. It is used to check for any errors in the double entry bookkeeping. The Debit balance should equal the Credit Balance. If it does not balance, there is a mistake in the accounts.