CH3 - Double entry bookkeeping and preparation of financial statements Flashcards
What is a ledger account?
Also known as ‘T’ accounts is a graphical representation of the business’ transaction
Where are debits and credits recorded?
Recorded in ledger accounts. Debits are on the right and credits are on the left
What type of transaction is included in the debit section of ledgers?
Expenses (SPL)
Assets (SFP)
Drawings (SFP)
What types of transactions are included in Expenses?
Electricity
Purchases
Wages
What types of transactions are included for assets?
Cash
Inventory
Buildings
Cars
Trade receivablesW
What are drawings?
When owners withdraw cash
What type of transactions are included in the credit side of ledgers?
Liabilities (SFP)
Income (SPL)
Capital (SFP)
What types of transactions are included in liabilities?
Trade Payables
Bank Loans
What types of transactions are included in Income?
Sales revenue, interest received, rental incomeW
How are purchase of inventory recorded as?
Dr Purchases (expenses)
Cr Cash/Trade payables
How are sales of inventory recorded as?
Dr Cash/trade receivables
Cr Sales income
How many types of T accounts (ledger) are there?
There is a ledger account for each type of asset, liability, drawings, capital, income or expense
What is the format of a ledger account?
Date [Narative] £
What does balancing off a ledger account mean and how is it achieved?
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
What does DEADCLIC mean?
Debits Credits
Expenses Liabilities
Assets Income
Drawing Capital
The balance b/f is shown on the debit side for which transactions?
Assets, expenses or drawings
The balance b/f is shown on the credit side for which transactions?
Liability, income or capital ledger
What is a trial balance?
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
Which statement is trial balance used to produce
Statement of profit or loss and statement of financial position
What are the steps to produce profit or loss accounts for the next year?
Close off c/f balances in profit or loss ledgers then they start from NIL again
What are the steps to produce Statement of financial position ledger accounts?
- Close off c/f balance on the drawings ledger accounts transferred to capital ledger accounts
- The closing c/f balance on profit and loss ledger account is transferred to the capital ledger account
