Chapter 4: Ledger accounting and double entry

Question 1

Define: Nominal ledger

Answer 1

The main accounting record in which financial transactions are recorded

Question 2

Define: Double-entry bookkeeping (2)

Answer 2

1. Each transaction has an equal but opposite effect

2. Every accounting event must be entered in ledger accounts both as a debit and a credit

Question 3

Effect of a debit entry on assets

Answer 3

Increase an asset

Question 4

Effect of a debit entry on expenses

Answer 4

Increase an expense

Question 5

Effect of a debit entry on liabilities

Answer 5

Decrease a liability

Question 6

Effect of a debit entry on capital

Answer 6

Decrease capital

Question 7

Effect of a debit entry on income

Answer 7

Decrease income

Question 8

Effect of a credit entry on assets

Answer 8

Decrease an asset

Question 9

Effect of a credit entry on expenses

Answer 9

Decrease an expense

Question 10

Effect of a credit entry on liabilities

Answer 10

Increase a liability

Question 11

Effect of a credit entry on capital

Answer 11

Increase capital

Question 12

Effect of a credit entry on income

Answer 12

Increase income

Question 13

What is the double entry for petty cash?

Answer 13

Debit Petty cash

Credit Cash at bank

Question 14

What are the two types of discount?

Answer 14

1. Trade discounts

2. Early settlement discounts

Question 15

Define: Trade discount

Answer 15

A percentage discount deducted from the list price of goods owing to the nature of the trading transaction

Question 16

How to account for trade discounts (2)

Answer 16

1. Purchases should be recorded net of trade discounts received from suppliers
2. Sales should be recorded net of trade discounts given to customers

Question 17

Define: Early settlement discount

Answer 17

A percentage reduction in the amount payable in return for payment within an agreed period