CH3 - Double entry bookkeeping and preparation of financial statements

Question 1

What is a ledger account?

Answer 1

Also known as ‘T’ accounts is a graphical representation of the business’ transaction

Question 2

Where are debits and credits recorded?

Answer 2

Recorded in ledger accounts. Debits are on the right and credits are on the left

Question 3

What type of transaction is included in the debit section of ledgers?

Answer 3

Expenses (SPL)
Assets (SFP)
Drawings (SFP)

Question 4

What types of transactions are included in Expenses?

Answer 4

Electricity
Purchases
Wages

Question 5

What types of transactions are included for assets?

Answer 5

Cash
Inventory
Buildings
Cars
Trade receivablesW

Question 6

What are drawings?

Answer 6

When owners withdraw cash

Question 7

What type of transactions are included in the credit side of ledgers?

Answer 7

Liabilities (SFP)
Income (SPL)
Capital (SFP)

Question 8

What types of transactions are included in liabilities?

Answer 8

Trade Payables
Bank Loans

Question 9

What types of transactions are included in Income?

Answer 9

Sales revenue, interest received, rental incomeW

Question 10

How are purchase of inventory recorded as?

Answer 10

Dr Purchases (expenses)
Cr Cash/Trade payables

Question 11

How are sales of inventory recorded as?

Answer 11

Dr Cash/trade receivables
Cr Sales income

Question 12

How many types of T accounts (ledger) are there?

Answer 12

There is a ledger account for each type of asset, liability, drawings, capital, income or expense

Question 13

What is the format of a ledger account?

Answer 13

Date [Narative] £

Question 14

What does balancing off a ledger account mean and how is it achieved?

Answer 14

Closing off a balance.
Steps: 1) Add up debits and credits side of the ledger account to see which is higher
2) Take the higher total and include as total for both sides
3) On side with smaller total insert figure needed to make it add up and call it the ‘balance c/f’
4) Opposite side of the ledger, below total figure, insert the amount of balance c/f figure and call it the balance balance b/f

Question 15

What does DEADCLIC mean?

Answer 15

Debits Credits
Expenses Liabilities
Assets Income
Drawing Capital

Question 16

The balance b/f is shown on the debit side for which transactions?

Answer 16

Assets, expenses or drawings

Question 17

The balance b/f is shown on the credit side for which transactions?

Answer 17

Liability, income or capital ledger

Question 18

What is a trial balance?

Answer 18

List of all closing balances (balance b/f) on the ledger accounts according to whether the balance b/f is on the debit or credit side.W

Question 19

Which statement is trial balance used to produce

Answer 19

Statement of profit or loss and statement of financial position

Question 20

What are the steps to produce profit or loss accounts for the next year?

Answer 20

Close off c/f balances in profit or loss ledgers then they start from NIL again

Question 21

What are the steps to produce Statement of financial position ledger accounts?

Answer 21

1. Close off c/f balance on the drawings ledger accounts transferred to capital ledger accounts
2. The closing c/f balance on profit and loss ledger account is transferred to the capital ledger account