Chapter 4: General Ledger And Trial Balance Flashcards
Name and explain the different ledgers
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
What step in the accounting process is posting to the general ledger
The third step
What are the steps for balancing an account
- Total the amounts on the debit side and write the total down in pencil
- Total the amount on the credit side and write the total down in pencil
- Write the larger total in pen between the total lines in the amount columns on the debit side and credit side
- 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
- Now write the balance below the total lines in the column of the opposite side of the account
True or False
Service entities earn income mainly from rendering services.
True
True or False
Trading entities earn income mainly by buying goods and selling them at a loss
False
What is the gross profit perpetual formula
Gross profit = Net Sales - Cost of sales
Net sales = sales - cost of sales
What is the selling price formula
Selling price = Cost price + mark up
What is another way to describe goods purchased or sold
Trading stock or inventory
Why is it important for an entity to keep an accurate record of inventory
Because it can affect the profitability of an entity
Name the two methods that exist which inventory can be accounted for
The periodic inventory system and the perpetual inventory system
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
(a) Perpetual
(b) Periodic
What does cost of inventory include
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
Cost of sales formula using the periodic inventory system.
Opening inventory + purchases - purchase returns + freight charges, etc. - closing inventory
Net purchases formula
Opening inventory + Purchases - Purchase returns + Freight charges etc.
What is the trial balance
It is a two column list of all the accounts in the general ledger together with their balances. The trial balance must balance
Name and explain the different trial balances
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
Name the errors revealed by a trial balance
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
Name the errors NOT revealed by a trial balance
Omission
Posting to the incorrect account
Principal errors
Compensating errors
What is the trial balance is used to prepare
The trial balance is used to prepare the financial statements
Explain what is the cost of sales
The cost of sales is the amount that the entity paid for the inventory that has been sold during the relevant financial period
Net sales formula
Sales - sales returns and allowances
