Double entry bookeeping

Question 1

What are assets?

Answer 1

Assets are items that the business owns. For example, cash and machinery

Question 2

What are liabilities?

Answer 2

Liabilities are amounts which are owed by the business to other parties. For example, loans

Question 3

What is capital?

Answer 3

The amount of cash injected by the owner + profit the business has made - and drawings the owner has made.

Question 4

How do you calculate profit?

Answer 4

Income - expenses

Question 5

How is income generated?

Answer 5

Main sources of income is from sales of goods or services.
Could be sundry income such as interest paid by its bank or rent received from its tenants.

Question 6

What are the main expenses of a business?

Answer 6

Goods which have been purchased for resale, any ongoing running costs of the business eg: electricity, wages, rent for premises.

Question 7

What does a debit entry represent?

Answer 7

1) An increase in an asset
2) An increase in expenses
3) An increase in drawings
4) An decrease in liabilities, income or capital

Question 8

What does a credit entry represent?

Answer 8

1) An increase in a liability
2) An increase in income
3) An increase in capital
4) A decrease in assets, expenses or drawings

Question 9

What acronym is used to help remember the general rules of double entry?

Answer 9

DEAD CLIC

Question 10

For a cash transaction what account is the best place to start for the double entry process? Debit and credit entries?

Answer 10

Cash account
If cash is received then DEBIT the cash account the sum of money
If cash is paid out then CREDIT the cash account the sum of money

Question 11

For credit transactions what are the two accounts which will be used for double entry?

Answer 11

If a business buys (credit purchase) goods or services off a supplier then the supplier would be a TRADE PAYABLE
If a business sells goods or services to a customer then the customer would be a TRADE RECEIVABLE.
Sales on credit gets recorded in the receivable ledger controls account
Purchases on credit gets recorded in the payable ledger control account.

Question 12

What is the subsidiary ledgers?

Answer 12

The receivables and payables ledger, not part of the general ledger. Contains a ledger account for each individual credit customer.

Question 13

How can the accounting equation be manipulated?

Answer 13

Capital = Assets - Liability
Assets = Liability + Capital
Liabilities = Assets - Capital

Question 14

What is capital income?

Answer 14

One off receipts put into the business. For example, Sales of non-current assets

Question 15

What is Capital Expenditure?

Answer 15

Purchases of non current assets. For example, purchase of a building.

Question 16

What is Revenue Expenditure?

Answer 16

Day-to-Day expenses such as purchasing of goods

Question 17

What is Revenue Income

Answer 17

Day-to-Day income for example selling goods.