Day 1 - chapter 3 Flashcards
Dr
debt
Cr
credit
What does debt increase?
expenses - p/l
asset - financial position
drawing/dividends - financial position
what does credit increase?
liability - financial position
income - p/l
capital - financial position
What is DEAD CLIC?
DEBIT
EXPENSE
ASSET
DRAWING
CREDIT
LIABILITY
INCOME
CAPITAL
What is the T account rule?
we DRive on the left
we CRash on the right
What is the summary of the steps to record a transaction?
identify the two accounts that are affected
consider whether they are being increased or decreased
decided whether each account should be debited or credited
check debt entry have equal credit entry
Total debts must equal
total credits
What happens if we receive cash?
debit cash - its an asset
credit income - cash is an income to the business
What happens if we pay cash?
credit cash - decrease asset
What do we do when we first buy inventory?
Dr purchases (expenses) - cos of sales
Cr cash/trade payable
What do we do when we sell inventory?
Dr cash/trade receivables
Cr sales income - revenue p/l
Balancing off ledger accounts for income or expense accounts,
the balance is transferred to the statement of profit or loss, leaving a nil balance in the ledger account.
An asset or the drawings ledger account
should have the balance b/f on the debit side.
A liability or the capital ledger account
should have the balance b/f on the credit side.
b/f is
at the very end
c/f is
in the calculation
any balances on income and expense accounts are
taken to the statement of profit or loss, leaving no balance on the ledger account
Asset and liability ledger accounts
The statement of financial position is a snap-shot in time of the business showing the assets and liabilities on a particular date.
Therefore, the closing c/f balance becomes the opening b/f balance for the next period.
Capital ledger accounts
- The closing c/f balance on the drawings ledger account is transferred to the capital ledger account.
- The profit or loss in the year from the statement of profit or loss is taken to the capital ledger account.
The capital account is therefore a summary of the capital section of the statement of financial position.
For assets, liabilities, capital and drawings,
Add up the debit and credit side of the ledger account to see which is the higher.
Take the higher total and make it the total for both sides of the account
Find the balancing figure and call this figure ‘balance c/f’ (carried forward).
Take the c/f figure and make it the brought forward figure (balance b/f) underneath the total on the opposite side.
For income and expense accounts
Add up the debit and credit side of the ledger account to see which is the higher.
Take the higher total and make it the total for both sides of the account.
Extract the balance to the statement of profit or loss.
Which ones do we roll forward to next year?
asset
liability
capital
Which ones do we transfer?
expenses and income which is profit or loss
