Chapter 7&8 Flashcards
For receipts give examples of debit and credit accounts?
Receipts:
Debit:
- Cash account (with cash)
- or Bank account (with bank receipt)
Credit:
- Relevant account
For payments give examples of debit and credit accounts?
Payments:
- Credit Cash account (with cash)
- or Bank account (with bank payment)
Debit:
- Relevant account
For capital introduced give an example of a credit/debit account
Capital introduced:
Debit - Cash/bank account
Credit - Capital account
For drawings give an example of a credit/debit account
Drawings:
Debit - Drawings account
Credit - Cash/bank account
For money borrowed give an example of a credit/debit account
Money borrowed:
Debit - Cash/bank account
Credit - Loan creditors account
For sales give an example of a credit/debit account
Sales:
Debit - Customers account
Credit - Sales revenue account
For purchases give an example of a credit/debit account
Purchases:
Debit - Purchases account
Credit - Suppliers account
For Sales returns (inwards) give an example of a credit/debit account
Sales returns (inwards):
Debit - Sales returns account
Credit - Customers account
For Purchases returns (outwards) give an example of a credit/debit account
Purchases returns (outwards):
Debit - Suppliers account
Credit - Purchases returns account
For Receipts from customers: give an example of a credit/debit account
Debit - Cash/bank account
Credit - Customers account
For Payments to suppliers give an example of a credit/debit account
Debit - Suppliers account
Credit- Cash/bank account
What is a rule about Payments to acquire assets that normally last for more than one year?
Payments to acquire assets that normally last for more than one year (known as non-current assets; e.g. motor vehicles) should not be put in the same account as
other costs associated with their use (e.g. motor
expenses such as repairs).
What is the procedure for balancing T accounts?
- Compute the difference between the amounts in the debit and credit columns of an account and enter it on the side with the lowest amount as a balance carried down (c/d).
- Draw parallel lines under the balance (c/d) on both sides, and enter the total of each side (these should now be the same).
- Enter the amount of the balance below the parallel lines on the opposite side to the balance (c/d) and describe it as the balance
brought down (b/d). - This closing of the account is double entry. You are crediting/debiting the old period and then debiting/crediting the
new period with the balance on the account.
How do you Balance different types of
account
- If the account is a movement in owners’ capital account (ie drawings, capital introduced and the statement of profit or loss account) then it is balanced off to the capital account.
- If the account is a revenue account the balance is transferred to the statement of profit or loss account. There is no opening balance in the next period.
- If the account is an asset or liability - the balance carries forward into the new period
What is a trial balance?
- A trial balance is a list of the balances in the ledger at the end of an accounting period, divided between those accounts with debit balances and those with credit
balances. - Since every transaction recorded in the ledger consists of both a debit and credit entry, the total of those accounts in the trial balance with debit balances should equal the total of those with credit balances.
What are the functions of a trial balance?
- The trial balance is a method of internal control that provides a check on the arithmetic accuracy of the ledger
and that the same amount for each transaction has been entered on both sides of the ledger. It therefore also facilitates the identification of any errors. - The trial balance is used in the preparation of final financial statements.
Will a cash account always have a debit balance?
- A cash account will always have a debit balance, but the bank can have a credit balance which represents a bank
overdraft.
