Double Entry Bookkeeping

Question 1

What does Double Entry mean?

Answer 1

• For every transaction, there will be two equal accounting entries made
• It has the Convention of Dual Aspect
• 1 is Debit, 1 is Credit
• These are equal and opposite

Question 2

What accounting model will these transactions enter?

Answer 2

• A T-Account
• Each Transaction will feature in two separate transaction
• You will end up with a lot of T-Account

Question 3

Explain the DEBK process

Answer 3

• All transactions must be entered into a T-Account
• After this, the balance on each account is entered into a ‘Trial Balance’ (Big T-Account)
• The two things should balance
• Entries in Trial Balance are used to prepare financial statement

Question 4

What is the Accounting Equation?

Answer 4

• Assets - Liabilities = Capital + Revenue - Expenses

Question 5

What is the Trial Balance Equation?

Answer 5

• Assets + Expenses = Capital + Revenue + Liabilities

Question 6

If Asset values are increased, what side would you put it on?

Answer 6

• Debit
• If Expense values are decreased, it would be on the Credit side.

Question 7

If Capital values are increased, what side would you put it on?

Answer 7

• Credit
• If Revenue or Liability values are decreased, it would be on the Debit side

Question 8

What does debit or credit mean (in terms of giving/receiving) ?

Answer 8

• Debit, to receive, thus value received
• Credit, to give, thus value given

Question 9

Name some examples of Asset Accounts

Answer 9

• Bank: Records money kept at the bank by the entity
• With a bank account, debit always comes in and credit always goes out
• Cash: Notes and coins coming in and out of a business
• Trade Receivable: When the entity sells goods to customers and grants credit, which will later come back
• Machinery/Vehicles(etc): A non-current asset which will have enduring benefits for >1yr

Question 10

Name some examples of Expense Accounts

Answer 10

• Purchases: Refers to goods bought with the intention of later resale
• Gas/Wages/Electricity/Rent(etc): Payments made for services rendered to the entity to help it have sales revenue- must open separate accounts for different things

Question 11

Name the example of Capital Accounts

Answer 11

• Capital (Owner’s Equity): Records the contributions made by an owner

Question 12

Name the example of Revenue Accounts

Answer 12

• Sales: Records of the value of goods and services sold
• Settlement will be in other accounts (Bank/Cash)

Question 13

Name some examples of Liability Accounts

Answer 13

• Trade Payable: The entity making a purchase based on credit (E.G- Suppliers)
• Loan: An institution or person whom the entity has borrowed from

Question 14

What are some other accounts?
(Contra-Accounts)

Answer 14

• Discount: Reduces liabilities- the supplier/firm/individual reduces the amount needed to repay on the loan or trade payable
• Drawings: Reduces assets- the owner taking out assets for personal use

Question 15

How do you make a Sale on Credit?

Answer 15

• You open a ‘Trade Receivable’ account, Debit it and then Credit it when money comes in (BANK/CASH)

Question 16

How do you make a Purchase on Credit?

Answer 16

• You open a ‘Trade Payable’ account, Credit it and then Debit it when money goes out (BANK/CASH)

Question 17

How do you make a Discount?

Answer 17

• You open a Discounts account, you credit it and debit it under the Trade Payable or Trade Receivable

Question 18

How do you make a Return?

Answer 18

You ‘cancel out’ the action - change the side of the original transaction