Chapter 5: Ledger, Double Entry

Question 1

[C5/1]Why do we need ledger accounts?

Answer 1

Ledger accounts summarise all the individual transactions listed in the books of prime entry.

Question 2

[C5/1]How should the records of trans. assets and liabilities be kept?

Answer 2

• In chronological order and dated

- Built up in cumulative totals (Daily, weekly monthly, yearly)

Question 3

[C5/1]What is the method to summarise all the transactions from various books of prime entry?

Answer 3

• Ledger accounting

- Double entry

Question 4

[C5/2]Where do principal accounts contained?

Answer 4

The principal accounts are contained in a ledger called the general or nominal ledger.

Question 5

[C5/3]The accounting equation/ Statement of financial position equation?

Answer 5

ASSETS=CAPITAL+LIABILITIES

Question 6

What are drawings?

Answer 6

Drawings are amount of money taken out of a business by its owners.

Question 7

Types of drawings?

Answer 7

• Drawings (Sole Trader and partnership)
• Dividends (In case if the owner of the company is not in a governing board)
• Directors Loan (In case if the owner of the company is part of the governing body)

Question 8

Trade accounts payables?

Trade accounts receivables?

Answer 8

• A payable is a person or organisation to whom a business owes a money.
  Also called trade creditors.
• A receivable is a person who buys goods without paying cash for them straightaway.
  Also called trade debtors.

Question 9

What is matching convention?

Where does it come from?

Answer 9

The matching convention requires that revenue earned is matched with expenses incurred in earning it.
Comes from the accruals assumption.

Question 10

Rule of double entry bookkeeping?

Answer 10

A debit entry will:
Increase an asset
Decrease a liability
Increase an expense

A credit entry:
Decrease an asset
Increase a Liability
Increase income

Question 11

In terms of accounts how debit and credit will affect them?

Answer 11

▶ Asset 
Debit+
Credit-
▶ Liability
Credit+
Debit-
▶ Capital
Credit+
Debit-
▶ Income
Credit+
Debit-
▶ Expense
Debit+
Credit-

Question 12

What is Journal?

Answer 12

The journal is the record of prime entry for transactions which are not recorded in any of the other books of prime entry

Question 13

What happens with entries/ transactions after their analyse in day books?

Answer 13

They are totalled, analysed and posted to the nominal ledger.

Question 14

Personal accounts?

Answer 14

The receivables and payables ledgers contain the personal accounts of individual customers and suppliers. They do not normally form part of the double entry system.

Asset, Liab. Capital, Income, Expense = Impersonal accounts
Individuals accounts = personal accounts

Question 15

Why is there a need for personal accounts?

Answer 15

• Most important is the need to match payments received against debts owed. If a customer makes a payment, the business must be able to set off the payment against the customers debt and establish how much they still owe on balance.
• Customer can telephone and ask how much money they owe. Staff must be able to answer.
• To make possibilities of sending statements to credit customers at the end of each month.
• To provide inform. for managers, so they know what is current status of customers.