Chapter 3 - Double entry bookkeeping & preparation of financial statements Flashcards
What does the pseudonym DEADCLIC stand for?
**Debit (increase)
**Expense
**Asset
**Drawings
**Credit (increase)
**Liability
**Income
**Capital
Why isn’t there a T account for inventory?
Due to the number of transactions, a business will not normally account for inventory until the end of the year
How do you balance off a ledger account?
- Add up debit side and credit side to see which is the highest
- Take the higher total and include the total for both sides
- On the side with the lower total, insert the figure needed to make this side add to the chosen total - balance c/f
- On the opposite side of the ledger, below the total figure, insert the balance c/f figure but call it balance b/f
Which side should the balance b/f be on?
DEAD - balance b/f on debit side
CLIC - balance b/f on credit side
What is a trial balance?
A list of all the closing balances (balance b/f) on the ledger accounts
How can you check if the trial balance is correct?
Total debits = Total credits
What is opening inventory?
The closing inventory from the previous period
How is opening inventory classified?
It is part of this period’s CoS (as it should be sold this year) and it was added to purchases when bought
What is closing inventory?
Goods which have been purchased but not yet sold
How is closing inventory classified?
They are an asset (current) to the business as they are held for resale.
What is the double entry to record closing inventory?
Dr Closing inventory (SFP)
Cr Closing inventory (SPL - CoS)