Chapter 3- Double Entry + Financial Statements

Question 1

DEAD CLIC

Answer 1

Debit (expenses, assets + drawings)

Credit (liabilities, income + capital)

Question 2

inventory is adjusted…

Answer 2

at YE

Question 3

record all purchases of inventory as…

Answer 3

Dr purchases

Cr Cash/trade payables

Question 4

record all sales of inventory as…

Answer 4

Dr cash/ trade receivables

Cr sales income

Question 5

The individual ledger accounts are all held in…

Answer 5

the general/ nominal ledger

Question 6

Balancing off ledger accounts

Answer 6

• On the side (Cr or Dr) with the smaller total insert the amount needed to make it add up and call this figure ‘balance c/f’
• On the opposite side, below the total figure, insert the balance c/f figure and call it ‘balance b/f’

Question 7

trial balance is a…

Answer 7

list of all the closing balances

Question 8

P+L ledger account

Answer 8

contain the closing c/f balances

Question 9

Asset + liability ledger accounts

Answer 9

closing c/f balance becomes opening b/f balance for next period

Question 10

Capital ledger accounts

Answer 10

• Closing c/f balance on drawings ledger is transferred to capital ledger
• Closing c/f balance on P+L ledger is transferred to capital account

Question 11

Anchor Ltd is preparing its financial statements. After transferring the balances on all the income and expense ledger accounts to the profit and loss ledger account, the total credits in the profit and loss ledger account exceed the total debits by £4,000.

Answer 11

• Anchor Ltd has made a profit for the year of £4,000 (an increase in profit, means an increase in capital which is a credit)
• To begin to calculate the closing capital account balance, Anchor Ltd should credit the capital account and debit the profit and loss ledger account with £4,000