CHAPTER 3A - DOUBLE ENTRY

Question 1

Name the 4 rules for making double entries

Answer 1

1. Decide which 2 accounts are involved in the transaction
2. The account receiving value is debited
3. The account giving value is credited
4. Alway consider the transaction from the firm’s viewpoint

Question 2

What 4 pieces of information do you record on a ledger entry?

Answer 2

Date

Name of other account in transaction

Amount credited or debited

Balance (credit balances in brackets)

Question 3

What is the trail balance and what format is used?

Answer 3

The balances of all ledger acounts

Confirms if double entry is correct

One line per account

Separate columns for Dr and Cr (no brackets for credit balances)

The total of each column must match

Question 4

Name the 4 parts of the ledger

Answer 4

Sales Ledger (customer accounts)

Purchase Ledger (supplier accounts)

Nominal / General Ledger (assets, liabilities, capital, income and expense accounts)

Cashbook (cash and bank account section of nominal ledger - records movement of cash)

Question 5

Describe cash and credit transactions

Answer 5

Cash transactions are completed on same day - payment (not necessarily in actual cash) is made on the day the goods / services are supplied

Credit transactions are paid for at a later date - create a debtor or creditor

Question 6

What is Capital Expenditure?

Answer 6

Relates to a fixed asset including:

• Buying
• Setting Up
• Improving
• (NOT REPAIRING!)

Benefits last more than one accounting year

Increases the fixed asset value on the balance sheet (the account is debited)

Question 7

What is Revenue Expenditure?

Answer 7

Day to day running costs

Purchase of goods for resale

Benefit of expense lasts less than one year

Written off immediately to the P&L as an overhead

Question 8

What appears in the purchases account?

Answer 8

Goods bought for resale

Question 9

What does a sales account record?

Answer 9

Income generated from sales

The sales account is credited (goods are given to customer)

We either debit the cash / bank account (if payment received immediately) OR debit the debtor account (if paying later)

Question 10

What’s the difference between bank and cash accounts?

Answer 10

Cash is for actual cash and bank is for al other payment methods