CHAPTER 3

Question 1

Why are ledger accounts needed

Answer 1

To support an accounting system that is capable of recording
changes in the accounting equation, without requiring that the accounting equation be rewritten every time. Rewriting the accounting equation after every transaction would not be practical for a real, functioning small business as it would be unnecessarily time consuming.

Question 2

Ledger Accounts

Answer 2

Accounting records showing all the transactions that affect a particular item. Each individual account will record all increases or decreases in that particular item. For instance, the Bank ledger account will record all movements of cash in and out of the firm’s bank account. Each transaction changes at least two items in the accounting equation, so at least two ledger accounts will need to be changed. By recording each transaction only in the ledger accounts of the two items that are affected, the changes to the accounting equation can be recorded without having to rewrite every item in that accounting equation.

Question 3

Double entry accounting in ledger accounts

Answer 3

1 As every transaction effects at least two elements of the accounting equation every transaction must be recorded in at least two ledger accounts.
2 In order to ensure that the accounting equation remains in balance, every transaction must be recorded on the debit side of one ledger account and the credit side of another.

Question 4

Cross-reference

Answer 4

The name of the other account affected by a transaction, so that both accounts affected by a particular transaction can
be identified.