double entry book keeping

Question 1

what is double entry accounting?

Answer 1

it is the idea that for every transactions have two effects and you always record a debit and a credit

Question 2

what is the accounting equation?

Answer 2

Assets = liabilities + equity

Question 3

whats another word for equity?

Answer 3

capital

Question 4

what side are debits and credits always on?

Answer 4

debits on the left credits on the right

Question 4

who is the founder of double entry accounting?

Answer 4

luca pacioli

Question 5

what is the sign for credits?

Answer 5

cr

Question 6

what is the sign for debits?

Answer 6

dr

Question 7

what is economic benefit?

Answer 7

the potential for an asset to contribute directly or indirectly to an entity’s flow of cash

Question 8

what are the debits?

Answer 8

assets (SOFP)
expenses (SOPL)

Dividends
Expenses
Assets

Question 9

what are the credits?

Answer 9

liabilities (SOFP)
equity (SOFP)
income (SOPL)

Question 10

how do you remember debits and credits?

Answer 10

“all little elephants eat ice cream” or DEA (debits) LER (credits)
D
E
A
L
E
R

Question 11

what is the accounting equation also called?

Answer 11

the balance sheet equation

Question 12

what is the accounting process?

Answer 12

transaction occurs
effect recorded in ledger account
balance ledger accounts off
year end: produce trial balances
year end: adjustments made and ledger accounts closed off
prepare financial statements

Question 13

what happens to debits on increase and decrease?

Answer 13

when debits increase we debit them and when they decrease we credit them eg assets expenses and dividends

Question 14

what happens to credit on increase and decrease?

Answer 14

when credits increase we credit them when they decrease we debit them eg liabilities equity revenues (income)

Question 15

what is an account receivable?

Answer 15

money you will receive and it is labelled as an asset

Question 16

what is an account payable?

Answer 16

money you have to pay back to someone and it is seen as a liability

Question 17

what happens to debits and credits when a customer pays?

Answer 17

assets are rising in the form of cash so we debit and trade receivables are falling as the money has been paid so we also credit as it is an asset

Question 18

what are purchases listed as?

Answer 18

an expense

Question 19

what happens when you pay a phone bill?

Answer 19

expenses rise meaning we debit and assets fall due to a loss of cash and therefore we credit

Question 20

what is a ledger?

Answer 20

an account in which transactions are recorded

Question 21

what form can ledger accounts be in?

Answer 21

t accounts or three column ruling

Question 22

what do we put in the description of t accounts and three column ruling?

Answer 22

the opposite account so if we have cash and expenses we will put expenses in the cash description and cash in the expenses description

Question 23

what happens when u open an account and it happens again?

Answer 23

dont open a new account use the same one

Question 24

what does a trial balance do?

Answer 24

shows the totals of all ledger accounts and whether they are debits or credits making sure the two side are equal

Question 25

what do we put in a purchases account?

Answer 25

goods purchased with the intention of resale

Question 26

what is in a three column ruling at the top?

Answer 26

date, description, cr, dr, balance

Question 27

in a three column ruling what do we do to credits in the balance or total part

Answer 27

we put credits in brackets

Question 28

what is accrual accounting?

Answer 28

transactions and expenses recorded at the time they happen and not when the cash changes hands, it must be reported in the accounting period it took place

Question 29

what happens to debits and credits when you sell on credit?

Answer 29

you sell with the intention of getting money in the future therefore trade receivables rise and assets go up meaning you debit it and as well as this revenues go up so you credit it

Question 30

in the final publishing do you use customer names or keep all trade receivables together?

Answer 30

keep together for security reasons

Question 31

what are receipts?

Answer 31

when a customer pays you back

Question 32

how should we recognise costs?

Answer 32

you account for all costs including costs it takes for you to get the asset in working condition, to the location of work or a useable state which you then capitalise

Question 33

what does capitalise mean?

Answer 33

to count something as an asset

Question 34

if there is further improvements or repairs to the asset what happens?

Answer 34

if it adds to the life or benefit to the asset you treat this as an asset however if it only maintains and keeps it at the sam standard this is then an expense

Question 35

what is cash accounting?

Answer 35

you recognise income when cash is received and expenses when payment is made to suppliers

Question 36

what is share capital?

Answer 36

ordinary share price x number of shares sold

Question 37

what is Equity capital?

Answer 37

funds paid into a business by investors in exchange for common stock or preferred stock it includes share capital and premium

Question 38

what is share premium?

Answer 38

how much more you make from selling shares than share capital

Question 39

what is an initial public offering?

Answer 39

first time shares are issued to the public

Question 40

does investors selling stocks to other investors get recorded?

Answer 40

no

Question 41

what is interaction between shares determined by?

Answer 41

demand and supply

Question 42

does the trial balance mean everything has been accounted correctly?

Answer 42

no

Question 43

what is insurance premium?

Answer 43

the amount of money you pay for an insurance policy and is an expenseA`