Chapter 4: General Ledger And Trial Balance

Question 1

Name and explain the different ledgers

Answer 1

There are three different ledgers, namely:

• The general ledger which contains all the asset, liability and equity accounts of an entity
• The debtors ledger which contains all the debtors accounts
• The creditors ledger which contains all the creditors accounts

Question 2

What step in the accounting process is posting to the general ledger

Answer 2

The third step

Question 3

What are the steps for balancing an account

Answer 3

1. Total the amounts on the debit side and write the total down in pencil
2. Total the amount on the credit side and write the total down in pencil
3. Write the larger total in pen between the total lines in the amount columns on the debit side and credit side
4. Deduct the smaller amount from the larger total and write the difference between the two (as balance) above the total lines on the side with the smaller total
5. Now write the balance below the total lines in the column of the opposite side of the account

Question 4

True or False
Service entities earn income mainly from rendering services.

Answer 4

True

Question 5

True or False
Trading entities earn income mainly by buying goods and selling them at a loss

Answer 5

False

Question 6

What is the gross profit perpetual formula

Answer 6

Gross profit = Net Sales - Cost of sales
Net sales = sales - cost of sales

Question 7

What is the selling price formula

Answer 7

Selling price = Cost price + mark up

Question 8

What is another way to describe goods purchased or sold

Answer 8

Trading stock or inventory

Question 9

Why is it important for an entity to keep an accurate record of inventory

Answer 9

Because it can affect the profitability of an entity

Question 10

Name the two methods that exist which inventory can be accounted for

Answer 10

The periodic inventory system and the perpetual inventory system

Question 11

Identify which is perpetual and which is periodic.
(a) The purchases account does not appear in the financial records. All transactions relating to **purchases, sales and return are recorded in the inventory account
(b) Purchases of inventory entry are recorded in the purchases account not in the inventory account

Answer 11

(a) Perpetual
(b) Periodic

Question 12

What does cost of inventory include

Answer 12

It includes all costs from the time of the purchase of the inventory until it is in the location and condition where it can be sold. Cost of inventory can include import tax, custom duty, freight and conversion costs

Therefore these accounts must be closed off against the cost of sales account at the end of each financial period

Question 13

Cost of sales formula using the periodic inventory system.

Answer 13

Opening inventory + purchases - purchase returns + freight charges, etc. - closing inventory

Question 14

Net purchases formula

Answer 14

Opening inventory + Purchases - Purchase returns + Freight charges etc.

Question 15

What is the trial balance

Answer 15

It is a two column list of all the accounts in the general ledger together with their balances. The trial balance must balance

Question 16

Name and explain the different trial balances

Answer 16

The pre-adjustment trial balance, it is prepared before any adjustment journal entries are recorded

The post-adjustment trial balance, it is prepared after any adjustment journal entries are recorded

The post-closing trial balance, it is prepared after the nominal accounts have been closed off and the profit or loss has been determined

Question 17

Name the errors revealed by a trial balance

Answer 17

The totals of each column have been calculated incorrectly

One or more ledger balances have been **incorrectly transferred to the trial balance

The ledger account balances have been incorrectly calculated

One or more postings from the general journal to the general ledger are incorrect

The accounts or amounts of one or more journal entries may have been entered incorrectly from the source documents

Question 18

Name the errors NOT revealed by a trial balance

Answer 18

Omission
Posting to the incorrect account
Principal errors
Compensating errors

Question 19

What is the trial balance is used to prepare

Answer 19

The trial balance is used to prepare the financial statements

Question 20

Explain what is the cost of sales

Answer 20

The cost of sales is the amount that the entity paid for the inventory that has been sold during the relevant financial period

Question 21

Net sales formula

Answer 21

Sales - sales returns and allowances