Chapter 3 Flashcards
asset = ?
liabilities + capital
Dr meaning
Debit
Cr meaning
Credit
DEAD
DEBIT ( increases )
Expenses - statement of profit or loss
Assets - statement of financial position
Drawings/dividends - statement of financial position
CLIC
CREDIT ( increases )
Liabilities - statement of financial position
Income - statement of profit or loss
Capital - statement of financial position
What is credit?
a decrease an expense, asset or drawing
What is a debit?
a decrease in liability, income or capital
What side is debit recorded?
left
What side is credit recorded?
right
Where is credit and debt recorded?
in ledger accounts - also known as T accounts
What are the summary 4 steps to record a transaction?
identify the two accounts that are being affected
consider weather they are being increased or decreased
decide which account should either be credited or debited
check that a debit entry and a credit entry for equal amounts have been made
What needs to happen at the end of the ledger account?
need to be balanced off to obtain a closing balance
add up debit and credit side of ledger account to see which one is higher
take higher total and include as total for both sides of account
in the side with smaller total - inset figure needed to make it add up and call this figure needed to make it add up and call this figure “balance c/f” ( carried forward )
on the opposite side of the ledger, below the total figure, insert the amount of the balance c/f figure and call it balance b/f (brought forward)
Where does the balance b/f have the asset, expense or the drawings ledger account?
debit side
Where does the balance b/f have the liability, income or capital ledger account?
credit side
What story does a statement of profit or loss show?
a story of what happened during the year
the next year, the ledger must start from beinging
What do you need to do with the closing c/f balances in the next year?
needs to be removed and transferred to a new account - the profit and loss ledger account
What does the profit and loss ledger account summarise?
the statement of profit or loss
What does the statement of financial position show?
a snap shot in time of the business showing the assets and liabilities at a particular date
What happens to the closing c/f balance in the next period (asset and liabilities ledgers account)?
closing c/f balance becomes the open balance for the next period
