Double entry bookkeeping

Question 1

What is the definition of separate entity?

Answer 1

The owner of the business is a separate entity from the business.

Question 2

What is the duel effect?

Answer 2

Each financial transaction has two financial effects.

For every debit, there must be a credit.

Each transaction has both a debit and credit entry in the ledger accounts.

Question 3

What is the accounting equation?

Answer 3

Assets - Liabilities = Capital

OR

Assets = Liabilities + Capital

Question 4

Define assets.

Answer 4

Items owned by the business and available for use within the business.

Question 5

Define non current assets.

Answer 5

Assets used for long term business not intended to be resold for trading activities.

Eg - Delivery van

Question 6

Define current assets.

Answer 6

Short term asset to be used by the business in the near future.

Eg - Trade receivables, inventory and money in the bank.

Question 7

Define liabilities.

Answer 7

Anything owed by the business.

Eg - Trade payables (We owe them money for goods and services bought on credit)

OR

Bank overdraft/loan

Question 8

Define capital.

Answer 8

The amount the owner has invested in the business. This is a special type of liability as the business owes the owner this money.

Question 9

Define capital income.

Answer 9

Income received from the sale of non-current assets. (Selling a delivery van)

Money received from “one off” irregular transactions.

Question 10

Define revenue income.

Answer 10

Income received from trading activities (the proceeds from received from selling goods/inventory).

Question 11

Define capital expenditure.

Answer 11

Money spent on purchasing or improving non current assets (Buying machinery or replacing windows).

Question 12

Define revenue expenditure

Answer 12

Day to day running expenses of the business, including repair and maintenance of non current assets (gas bill/fridge maintenance).