Double entry bookkeeping

Question 1

What three principles are double-entry bookkeeping based on?

Answer 1

Dual effect principle
Separate entity principle
Accounting equation

Question 2

What is the dual effect principle?

Answer 2

every transaction
two effects
debit/ credit entry
two equal and opposite effects

Question 3

What is the separate entity concept?

Answer 3

separate from owner
personal money = Captial owed
money taken out = drawings reduce capital

Question 4

What is the accounting equation?

Answer 4

assets = liabilities + capital

assets - liabilities = captial

Question 5

What would increase the owner’s capital in the accounting equation?

Answer 5

profit

Question 6

What would decrease the owner’s capital in the accounting equation?

Answer 6

drawings

Question 7

What would the accounting equation be when taking profits and drawings into consideration?

Answer 7

assets - liabiltiies = capital + profit - drawings

Question 8

What is an asset?

Answer 8

value controlled by business
tangible physical items
intangible items

Question 9

What is a liability?

Answer 9

obligation to something of value

result of past transactions

Question 10

What is equity?

Answer 10

residual interest
after wound up + assets sold + liabilities paid
paid back when ceases

Question 11

What is income?

Answer 11

the inflow of economic benefit

e.g. sales revenue

Question 12

What is an expense?

Answer 12

The outflow of economic benefits

purchasing goods/services

Question 13

How does a business keep track of sales earned, purchases and expenses incurred?

Answer 13

records in an accounting system

Question 14

What is the order of recording the transactions of a business?

Answer 14

business transactions
business document
books of prime entry 
ledger accounts
trial balance

Question 15

What is a trial balance?

Answer 15

list of ledger accounts

Question 16

What are the books of prime entry?

Answer 16

day books

Question 17

What is a sales day book?

Answer 17

sales invoices - given period

Question 18

What is a sales returns day book?

Answer 18

credit notes - given period

Question 19

What is a purchase day book?

Answer 19

purchase invoices - given period

Question 20

What is a purchase returns day book?

Answer 20

supplier credit notes - given period

Question 21

What is a cash book?

Answer 21

cash receipts and payments
bookkeeping system
prime entry

Question 22

What are the discounts allowed day book?

Answer 22

not deducted from the invoice

conditional basis

Question 23

What are the discounts received day book?

Answer 23

not deducted from the invoice

purchases daybook

Question 24

What is the petty cash book?

Answer 24

petty or small payments

systematically

Question 25

What is in the general ledger?

Answer 25

ledger accounts - transactions

Question 26

What is the subsidiary ledger?

Answer 26

details behind entries | individual receivables/payables

Question 27

What is the golden rule in double-entry bookkeeping?

Answer 27

debit = opposite credit

Question 28

What are the steps for balancing off a ledger account?

Answer 28

step 1 - higher total - both debit and credit columns Step 2 - Balance carried down Step 3 - Balance brought down

Question 29

What must the trial balance show?

Answer 29

debit balance total = credit balance total

Question 30

Steps for preparing a trial balance?

Answer 30

Step 1 - balance off each ledger account Step 2 - balance - debit/ credit balance Step 3 - Total debit and credit balance

Question 31

What is the purpose of a trial balance?

Answer 31

check on double entry basis: extended trial balance financial statements