Double-entry Bookkeeping Flashcards
What is a book or file containing the accounts known as?
A nominal ledger (or general ledger), and the accounts are called ledger accounts
How do we apply double-entry?
For every transaction we will be putting two entries - one on the debit side of an account and one of the credit side of another account
What does a debit entry represent?
An increase in an asset, a decrease in a liability, and an item of expense
What does a credit entry represent?
An increase in a liability, a decrease in an asset, and an item of income
What are the rules of balance?
1) Draw total lines on both sides of the t-account, 2) Add up the bigger of the two sides and put this total on both sides of the account, 3) Fill in the missing figure on the smaller of the two sides - this figure is the balance on the account, and 4) Carry forward this balance by also writing it on the opposite side of the account, below the total lines
What is it called when you accidentally debit and credit different figures?
Transposition error
How can we check to see if transposition error has occured?
List the balances on every account, the total of the debit balances should equal the total of the credit balances
Is the trial balance a t-account?
No, it is simply a list
What must be done to be able to produce a financial statement?
Each account must be examined and closed off
What are the rules for the Statement of Financial Position items?
These are assets and liabilities, so they exist at the end of the period and still exist at the beginning of the next period - leave the balance on the account
What are the rules for the Statement of Profit or Loss items?
These are total income or expenses, we have finished with the current period but wish to use the same accounts to record the income and expenditure of the next period - open a new account in nominal ledger called SOPL
What is the entry for items of income?
Debit Income t-account, credit SOPL t-account
What is the entry for items of expenditure?
Debit SOPL t-account, credit the expense t-account
What can we produce after completing the SOFP account?
A ‘pretty’ version of the SOPL suitable for the presentation to the owner by re-writing the figures from the t-account in the standard format
The amount owing to the owner at the end of the period is split into what accounts in the nominal ledger?
The capitals account, drawings account, and SOFP account
