Double Entry Book-keeping System Flashcards
Why it called T- accounts?
Each acc is divided into two sides - one debit, and the other credit
What is folio number?
Each acc is located a reference number so it can be easily located for cross reference
What is financial transaction?
Is an exchange of goods, services or cash, and most transactions will be between the firm and a 3rd party.
Every financial transaction is recorded twice
Account receiving value is DEBITED
Account giving value is CREDITED
What happens when double antry rule is recorded?
After any number of transactions being recorded, when both sides of all ledgers accounts are added up, the debit ans credit total must be the same
What is trial balance
It is a list of the closing debit and credit balances on all ledger accounts on a specific date.
Document that lists the balances of the ledger accounts. Usually it is EOM. If DR and CR agrees, this indicates double entry is correct.
What are the Ledger accounts?
- Sales ledger SL - contains customers acc;
- Purchase ledger PL - contains supplier acc;
- Nominal ledger NL - contains assets, liabilities, capital, income and expense acc;
- Cash book CB - is the cash and bank acc
What is the books of prime entry?
The sales day book, purchase day book, cash book (petty cash) and journal
Two type of transaction?
- Cash transaction - cash received or paid the same day (cash, cheque, debit/credit card, charge card, fast bank pmnt). Transaction there outstanding debt is completed same day, there is no ongoing debtor or creditor;
- Credit transaction - is where goods supplied on one date, with payment being made on an agreed later date. The credit transaction creates an outstanding debt and there will be either a debtor or creditor
What is Expenditure (islaidos)?
Is an exchange of money to buy goods, services and assets
Types of expenditure?
- Capital expenditure - relates to non-current assets, e.g. premises, machinery, equipment, motor vehicles. Those assets will be used for more than one year.
- Revenue expenditure - is costs involved in the day-to-day operating activities of the firm, e.g. purchases, salaries, insurance, rent.
What features Capital expenditure?
- Cost of buying a non-current asset;
- Plus any cost relating to setting up a non current asset, e.g. instalation etc
- Cost incurred by adding value to non-current asset
- Benefit from the cost last more than one year
- C/E is treated as an increase in the non-current assets in the balance sheet
What features Revenue expenditure?
- It is an expense, a cost of running business
- Benefit will be less than one accounting year, it has no lasting value
- It is treated as an expense or overhead in the profit and loss acc and has effect of decreasing the profit for the year
Rules of making double entry?
- Decide which accs are involveda nd open up the accounts
- The account receiving value is DEBITED
- The account giving value is CREDITED
- View transaction from the firm’s point of view
- To record entry as:
a) date: put month and date (Sept 10)
b) details: put name of acc in the transaction
c) DR or CR as appropriate
d) Balance: update the running acc balance. Credit balance should be in brackets ( )
When firm sells goods?
Sales account is credited
Bank (cash) or customer’s acc (credit) is credited
When firm purchasing goods?
Firm receiving goods so purchases acc is debited. Bank (cheque)/Cash or supplier acc (credit) are credited
