chapter 5

Question 1

groups of ledger accounts

Answer 1

assets
liabilities
income
expenses
capital and drawings

Question 2

assets

Answer 2

items that are owned by or owed to a business. they can be further divided into non current assets and current assets. asset accounts have debit balances

Question 3

non current assets

Answer 3

items bought by a business that are intended to be used in the business for more than one year

Question 4

current assets

Answer 4

cash and other assets, typically inventory and trade receivables, which are expected to be give rise to cash within 12 months

Question 5

liabilities

Answer 5

amounts owed by a business. they can be divided into non current liabilities and current liabilities. liability accounts have credit balances

Question 6

non current liabilities

Answer 6

amounts owed by a business that are repayable in more than one year

Question 7

current liabilities

Answer 7

items that the business is due to pay within 12 months

Question 8

expenses

Answer 8

expenditure incurred in running a business on a day to day basis. expense accounts have debit balances

Question 9

income

Answer 9

this group includes revenue from sales and other income. other income can be from rent receivable, discounts received and interest receivable. income accounts have credit balances.

Question 10

capital and drawings

Answer 10

the owners capital and drawings accounts do not fit neatly into these categories but are equally important. the capital account will have a credit balance and the drawing account will have a debit balance

Question 11

types of accounts with debt balances

Answer 11

expenses
assets
drawings

Question 12

types of accounts with credit balances

Answer 12

liabilities
income
capital

Question 13

personal account

Answer 13

an account relating to a person. personal accounts include account for trade receivables, accounts for trade payables and the owner’s capital and drawing accounts

Question 14

impersonal account

Answer 14

any account other than a personal account. it includes asset accounts (including both non current and current assets) and nominal accounts (including expenses accounts, revenue accounts or accounts with credit balances)

Question 15

nominal account

Answer 15

an account used to record the revenue and expenses of a business. it also relates to an account or accounts that record the revenue of the business from sales

Question 16

sales ledger

Answer 16

the book that contains the individual accounts of all the business’s credit customers. for the accounts of customers that buy on credit

Question 17

purchases ledger

Answer 17

the book that contains the individual accounts of all the business’s credit suppliers. for the accounts of suppliers from whom the business buys on credit

Question 18

use of general (or nominal) ledger

Answer 18

for assets, liabilities, revenue and other income, expenses

Question 19

use of private ledger

Answer 19

for accounts of a confidential nature, such as owner’s capital and drawings accounts and loan accounts; also the statements of profit or loss and statements of financial position

Question 20

use of cash book

Answer 20

for the bank and cash accounts

Question 21

what ledgers do businesses need

Answer 21

they do not need all the ledgers, the businesses will choose to use the ones that are useful to them

Question 22

why is the division of ledger essential in a business that employs several bookkeepers

Answer 22

the work may be divided between them so that they do not all need to be working on the same ledger at the same time. It makes sense to group items of a similar nature. Most importantly, it helps to detect and prevent errors occurring in the books of account. It may also help to detect and prevent fraud by the accounts staff. This is a form of internal control.