Chapter 1: Double-entry Bookkeeping

Question 1

What is the accounting equation?

Answer 1

Assets - liabilities = capital + profit (or - loss) - drawings

Question 2

What is the order in which a transaction is posted?

Answer 2

Data, books of prime entry, ledger accounts, trial balance, financial statements

Question 3

Name the three books of prime entry and what they are used for.

Answer 3

Day books - Sales Day Book, Purchase Day Book, Sales Returns andPurchase Returns

Cash and petty cash - records all cash transactions

Journal - correction of errors, write offs, etc.

Question 4

Name the two accounts within the general ledger and what they are used for.

Answer 4

Accounts Payable Ledger - records purchases on credit for each supplier

Accounts Receivable Ledger - records sales on credit for each customer

Question 5

What is the Trial Balance used for?

Answer 5

• to spot any errors
• to account for adjustments,
• to prepare the financial statements

Question 6

What are the two financial statements and what is recorded in them?

Answer 6

Statement of profit or loss (SPL) - revenue, costs and expenses

Statement of financial position (SFP) - assets, liabilities and equity