Double Entry Bookkeeping And Preparation Of Financial Statements

Question 1

DEAD CLIC (increases in)

Answer 1

Debit expenses, assets and drawings
Credit liabilities, income and capital
If decreases in these items then they become the opposite. Every debit must have a corresponding and equal credit

Question 2

sales, purchases and inventory

Answer 2

record all purchases of inventory as
Dr purchases(expenses)
Cr cash/ trade payable

Record all sales of inventory as
Dr cash/trade receivable
Cr Sales income

Question 3

Ledger accounts

Answer 3

Also known as T accounts. There is a ledger for each type of asset, liability, drawings and capital, income or expense. Each transaction affects 2 ledger accounts, one account is debited, other is credited.

Question 4

balancing off the ledger accounts

Answer 4

1. Add up the debit and credit side of the ledger account to see which is the highest
2. Take the highest total and include as the total for both sides of the account
3. On the side with the smaller total insert the figure needed to make it add up and call this figure ‘balance c/f’ (carried forward)
4. On the opposite side of the ledger inset the amount of the balance c/f figure and call it the balance b/f

Question 5

Trial balance

Answer 5

The trial balance is a list of all the closing balances (balance b/f) on the ledger accounts according to whether the balance b/f is on the debit or credit side

Question 6

Preparing the accounts for next year

Answer 6

Statement of profit or loss ledger accounts - the closing c/f balances need to be removed and transferred to a new account - the profit and loss ledger account - this is a summary of the statement of profit or loss
Statement of financial position ledger accounts - asset and liabilities - the closing c/f balance is the opening b/f balance for the next period. Capital ledger accounts - the closing c/f balance on the drawing and P&L ledger is transferred to the capital ledger account