Chapter Two- Bookkeeping Transactions

Question 1

Accounting Equation

Answer 1

Capital = Assets - Liabilities

Question 2

Books of Prime Entry

Answer 2

The records in which transactions are initially recorded

Question 3

Cash Book

Answer 3

The book of prime entry used to record money received and paid by the business

Question 4

Credit

Answer 4

The credit side of a ledger is the right hand side.
Credit entries represent an increase in:
- Liabilities
- Income
- Capital
and represent a decrease in:
- Expenses
- Assets
- Drawings

Question 5

Debit

Answer 5

The debit side of a ledger is the left hand side.
Debit entries represent an increase in:
- Expenses
- Assets
- Drawings
and represent a decrease in:
- Liabilities
- Income
- Capital

Question 6

Discounts Allowed Daybook

Answer 6

This daybook lists credit notes issued by the business for prompt payment discounts taken up by customers

Question 7

Discounts Received Daybook

Answer 7

This daybook lists credit notes issued by suppliers for prompt payment discounts taken up by the business

Question 8

Double-Entry Bookkeeping

Answer 8

A system of accounting where the two effects of each transaction are recorded

Question 9

Drawings

Answer 9

The money or goods that the owner takes out of the business

Question 10

Dual Effect

Answer 10

Every transaction a business undertakes has two effects on the business (a debit and a credit)

Question 11

General Ledger

Answer 11

A collection of ledger accounts where the double entry takes place for all the transactions of the business

Question 12

Input VAT

Answer 12

VAT on purchases reclaimable by VAT-registered businesses from HMRC

Question 13

Journal

Answer 13

The book of prime entry for non-standard transactions such as prepayments, accruals and depreciation

Question 14

Ledger Accounts

Answer 14

The accounts in which each transaction is recorded

Question 15

Output VAT

Answer 15

VAT on sales collected by VAT-registered businesses from the consumer on behalf of HMRC

Question 16

Purchases

Answer 16

Purchases either of materials that are to be made into goods for resale or purchases of goods that are to be resold to customers

Question 17

Purchases Daybook

Answer 17

This daybook lists the invoices received from credit suppliers

Question 18

Purchases Returns Daybook

Answer 18

This daybook lists the credit notes received from suppliers for items returned by the business to suppliers

Question 19

Sales

Answer 19

Sales of goods or services to customers either for cash or credit

Question 20

Sales Returns Daybook

Answer 20

This daybook lists credit notes issued to customers for items returned by customers to the business

Question 21

Trial Balance

Answer 21

A list of all the closing balances on each of the general ledger accounts with one column for all the items with debit balances and another column for all of the items with credit balances; total debits should equal total credits

Question 22

Value Added Tax (VAT)

Answer 22

A consumer tax imposed by the government on the sale of certain goods and services which is collected by the business on behalf of HMRC

Question 23

VAT Control Account

Answer 23

Summarised totals of all VAT transactions are posted to this account; on a regular (usually quarterly) basis, it is balanced off to give the amount due to or recoverable from the tax authorities