Double entry bookkeeping

Question 1

What is the dual effect principle?

Answer 1

Every transaction that a business makes has two effects

Question 2

What is the separate entity concept?

Answer 2

A business is a completely separate accounting entity from the owner

Question 3

what is the accounting equation?

Answer 3

Assets-Liabilities=Capital+profit-drawings

Question 4

What is a trial balance?

Answer 4

The list of balances on all of the ledger accounts in an organisations general ledger

Question 5

What are the steps to prepare a trial balance?

Answer 5

1. Balance off each ledger account and bring down the closing balance
2. list each balance brought down as either a debit or credit balance
3. total the debit and credit balances to see if they equal

Question 6

what are the 2 purposes of a trial balance?

Answer 6

1. a check on the double entry
2. a basis for preparing an extended trial balance and the financial statements

Question 7

what are the 2 principal financial statements?

Answer 7

• statement of financial position
• statement of profit or loss

Question 8

what is the statement of financial position?

Answer 8

a summary of all the assets and liabilities of the business on the last day of the accounting period

Question 9

what are the 2 section of a statement of financial position?

Answer 9

• all the assets and liabilities of the business
• how the business is funded

Question 10

what is a statement of profit and loss?

Answer 10

summarises the transitions of a business over an accounting period and determines whether the business has made a profit or loss

Question 11

what are the benefits of using digital bookkeeping systems?

Answer 11

• simple data entry and efficiency
• automatic generation of reports
• reduction of errors
• automation of tasks
  -integration with other systems

Question 12

what are the drawbacks of using digital bookkeeping systems?

Answer 12

• cost
• implementation and support
  -potential errors
• specialised needs