Chapter 4: The Concept of Double-entry

Question 1

What is an asset?

Answer 1

It is an resource owned or controlled by the business to carry out its activities.

Question 2

State the accounting equation.

Answer 2

Assets = Liabilities + Equity

Question 3

State whether trade receivables is an asset, liability or equity.

Answer 3

It is an asset.

Question 4

What will the effects be on the accounting equation if the business receives cash for goods sold?

Answer 4

Both assets and equity will increase.

Question 5

What will the effects be on the accounting equation if the business issues a cheque to repay a bank loan?

Answer 5

Both assets and liabilities will decrease.

Question 6

What is a liability?

Answer 6

It refers to the amount owned by the business to other businesses or individuals.

Question 7

What will be the effect on equity if income increases?

Answer 7

It will also increase.

Question 8

What will be the effects on the accounting equation if the business collects trade receivables from its customers?

Answer 8

No change because the increase in cash at bank will offset the decrease in trade receivables.

Question 9

What will be the effects on the accounting equation if the business returns goods previously bought on credit from its suppliers?

Answer 9

Both assets and liabilities will decrease.

Question 10

What is equity?

Answer 10

It refers to the amount contributed by the owners and the profit generated by the business.

Question 11

What is a ledger account?

Answer 11

It is the basic unit used by businesses to record all business transactions.

Question 12

What is the chart of accounts?

Answer 12

It is a list of all the ledger accounts used by the business.

Question 13

What are the double-entry recording rules?

Answer 13

They are:- 1) every business transaction will have at least 1 debit entry to 1 account and at least 1 credit entry to another account. 2) The total debit value must always equal the total credit value for each transaction.

Question 14

Melissa contributed $20 000 to her business on 1 Jan 2016. Pass the relevant journal entry to record this transaction.

Answer 14

Jan 1 Dr Cash in hand $20 000

Cr Capital $20 000

Question 15

Veronica pays cash of $ 3 250 for goods purchased from ABC Trading Ltd on 15 Feb 2016. Pass the relevant journal entry to record this transaction.

Answer 15

Feb 15 Dr Inventory $3 250

Cr Cash in hand $3 250

Question 16

Kevin sold goods worth $5 800 on credit to A Trading Ltd for $6 800 on 16 Feb 2016. Pass the relevant journal entry to record this transaction.

Answer 16

Feb 16 Dr Trade receivable - A Trading Ltd $ 6 800
Cr Sales revenue $6 800

         Dr Cost of goods sold  $5 800
           Cr Inventory                         $5 800

Question 17

Alvin borrows $15 000 cash from ABC bank on 17 Feb 2016. Pass the relevant journal entry to record this transaction.

Answer 17

Feb 17 Dr Cash in hand $15 000

Cr Bank loan $15 000

Question 18

Patricia bought a motor vehicle worth $45 000 on credit from Automobile Ltd on 18 Feb 2016. Pass the relevant journal entry to record this transaction.

Answer 18

Feb 18 Dr Motor vehicle $45 000
Cr Other payable - Automobile Ltd $45 000

Question 19

Candice withdrew $1 000 cash from her business to pay for her personal expenses on 19 Feb 2016. Pass the relevant journal entry to record this transaction.

Answer 19

Feb 19 Dr Drawings $1 000

Cr Cash in hand $1 000

Question 20

Jennifer collected $5 500 from her credit customer, Hans Cafe, on 20 Feb 2016. Pass the relevant journal entry to record this transaction.

Answer 20

Feb 20 Dr Cash in hand $5 500

Cr Trade receivables - Hans Cafe $5 500

Question 21

What will be the effect on equity if profits decreases?

Answer 21

It will decrease.

Question 22

What will be the effect on the accounting equation if the Adeline contributed an additional $12 000 capital to her business?

Answer 22

Both assets and equity will increase.

Question 23

State whether mortgage loan is an asset, liability or

equity.

Answer 23

It is a liability.

Question 24

What will be the effect on the accounting equation if Jasmine purchases a motor vehicle worth $50 000 using cash for her business?

Answer 24

No change because the decrease in cash in hand will be offset by the addition of a motor vehicle.

Question 25

What will be the effect on the accounting equation if Gerald withdraws $500 from his business’s bank account to pay for his personal expenses?

Answer 25

Both assets and equity will decrease.

Question 26

Timothy issues a cheque for repayment of bank loan worth $30 500 for his business on 21 Feb 2016. Pass the journal entry to record this transaction.

Answer 26

Feb 21 Dr Bank loan $30 500

Cr Cash in hand $30 500

Question 27

Mark pays cash amounting to $25 000 for salaries incurred on 22 Feb 2016. Pass the journal entry to record this transaction.

Answer 27

Feb 22 Dr Salaries expense $25 000

Cr Cash in hand $25 000

Question 28

What is an expense?

Answer 28

It is incurred by businesses to generate income.

Question 29

What is income?

Answer 29

It refers to the amount earned from selling goods or providing services.

Question 30

Cheryl receives goods previously sold on credit to its customer, C Trading Ltd for $4 800 on 23 Feb 2016. The goods cost Cheryl $3 500. Pass the journal entry to record this transaction.

Answer 30

Feb 23 Dr Sales revenue $4 800
Cr Trade receivables - C Trading Ltd $4 800

          Dr Inventory                   $3 500
            Cr Cost of goods sold      $ 3 500