Chapter 1 Intro. and Double Entry System

Question 1

The users of accounting info.

Answer 1

1) Managers
2) Owner
3) Bank
4) Prospective buyer/partners
5) Investors
6) Creditors
7) Government regulatory – the tax authority

Question 2

Accounting Equation

Answer 2

Assets = Liabilities + Owner’s Equity

Question 3

Assets

Answer 3

resources W monetary value. owned by the business, provided, or purchased to ensure enterprise can trade or provide service.
investment

Question 4

Non-current assets

Answer 4

Assets that would benefit the business for a long time.
ex: land and building (premises), machinery, motor vehicles, fixtures and fitting, office equipment (computer, furniture, photostat machine)

Question 5

current assets

Answer 5

Assets that quickly turned to cash, benefit a short period of time.
Ex: inventory, receivables (debtors/customers), prepaid expenses, accrued revenues, cash at bank, cash in hand

Question 6

Cash

Answer 6

Cash in hand- money inform of notes, coins, cheques, etc. at business premises.
Cash at the bank- all the money has been transferred by the owner of the business to the business bank account.

Question 7

Trade receivables

Answer 7

The amount owed by credit customers pays for goods or services after (sometime) when the goods are sold or given.

Question 8

liabilities

Answer 8

Amounts owed by a business to other businesses, organizations, or individuals (suppliers)

Question 9

Non-current liabilities

Answer 9

settled in long term, usually more than a year

Ex- long-term loan, notes payables, mortgage, hire purchase

Question 10

current liabilities

Answer 10

settled in the near future, less than a year

Ex- payables (creditors/suppliers), short term loan, accrued expenses, unearned revenues

Question 11

Accounting

Answer 11

the process of IDENTIFYING, MEASURING, and COMMUNICATING economics info to permit informed judgments and decisions by users of that information.

Question 12

Capital

Answer 12

the investments made by the owner(s) of a business equates to the net value of a business

Question 13

Owners Equity

Answer 13

OE = capital – drawings + profit - loss
OE = capital – drawings + revenues – expenses
OE = capital – drawing + [(sales – sales returns) – (opening inventory +purchases – purchases returns – closing inventory) + (other incomes – expenses)]

Question 14

Drawings

Answer 14

the withdrawals of funds for private use (owner of the business)

Question 15

double entry (ledger)

Answer 15

a system where each transaction is entered twice once on debit and once on credit.

Question 16

trade discounts

Answer 16

discount given by seller to buyer for bulk purchases, is recorded at net of discount, hence no double entry is needed

Question 17

cash discounts

Answer 17

discount given by seller to buyer for quick payments

Question 18

which Accounts have debit entries for an increase

Answer 18

Assets
Drawings
Purchases			+DR
Returns inwards		-CR
Expenses

Question 19

which Accounts that have credit entries for increase

Answer 19

Liabilities
Capital
Sales/revenues		+CR
Returns outwards		-DR
Other incomes

Question 20

Goods were sold on credit to a customer, Abu Trading. Indicate the double-entry of this transaction.

Answer 20

Debit Abu Trading account and credit Sales account

Question 21

Goods were sold by cash to customers, Abu Trading. Indicate the double-entry of this transaction.

Answer 21

Debit cash account and credit sales account

Question 22

Which of the following groups of accounts have normal debit balances?

Answer 22

Assets, expenses, and drawings

Question 23

Goods were bought on credit from supplier, Ali Trading. Indicate the double-entry of this transaction.

Answer 23

Debit purchases account and credit Ali Trading account

Question 24

Goods were bought by cash from supplier, Ali Trading. Indicate the double-entry of this transaction.

Answer 24

Debit purchases account and credit cash account

Question 25

Which of the following groups of accounts have normal credit balances?

Answer 25

Liabilities, revenues, and capital