Double-entry bookkeeping: first principles Flashcards
How do ledger accounts work?
Double-entry bookkeeping recognises that each transaction has a dual aspect. Once the dual aspect of each transaction has been identified, the two bookkeeping entries can be made in the ledger accounts of the accounting system.
An account is kept in the ledger to report each different type of transaction.
How is the ledger set out in a handwritten bookkeeping system?
the ledger will consist of a bound book, or separate sheets of paper - each account in the ledger will occupy a separate page
How is the ledger set out in a computerised bookkeeping system?
the ledger will consist of a computer file, divided into separate accounts
Illustrate the commonly-used layout of an account
Illustrate a ‘T’ account
Debit entry
the account which gains value. or records an asset, or an expense
Credit entry
the account which gains value, or records a liability, or an income item
What is recorded on the debit side for bank accounts and cash accounts?
money in
What is recorded on the credit side for bank accounts and cash accounts?
money out
When capital is introduced, what are the bookkeeping entries?
debit bank account
credit capital account
True or False? The introduction of capital into a business is often the very first business transaction entered into the books of account.
true
What are non-current assets?
items purchased by a business for use on a long term basis
Examples of non-current assets
premises, motor vehicles, machinery, office equipment
What is capital expenditure?
the expenditure of when a business buys non current assets
What is revenue expenditure?
where the items bought will be used by the business quite quickly
Example of capital expenditure and revenue expenditure
purchase of a car is capital expenditure
cost of fuel for the car is revenue expenditure
When non-current assets are bought, are separate accounts for each type of non-current asset used?
yes
eg premises account, motor vehicle account, machinery account etc.
Examples of revenue expenditure
rent, wages, electricity, telephone, vehicle running expenses (day to day expenses)
What are the bookkeeping entries for purchase of a non-current asset?
debit non-current asset account
credit bank account (or cash account)
What are the bookkeeping entries for the payment of an expense?
debit expense account (using the appropriate account)
credit bank account (or cash account)
From time-to-time a business may receive an amount of income, eg rent, commission or fees. Are these recorded into separate accounts for each category of income?
yes
eg rent income account, commission income account
What are the bookkeeping entries for receipt of income?
debit bank account (or cash account)
credit income account (using the appropriate account)
What are drawings?
When the owner takes money, in cash or by cheque (or sometimes goods) from the business for personal use
What are the bookkeeping entries for owner’s drawings?
debit drawings account
credit bank account (or cash account)
What are the bookkeeping entries for loan received?
debit bank account (or cash account)
credit loan account (in name of the lender)
What are the bookkeeping entries for loan repayment?
debit loan account
credit bank account (or cash account)
What are the bookkeeping entries for disposal (sale) of a non-current asset?
debit bank account (or cash account)
credit non-current asset account
What are the bookkeeping entries for withdrawal of cash from the bank for use in the business?
debit cash account
credit bank account
What are the bookkeeping entries for payment of cash into the bank?
debit bank account
credit cash account
Illustrate a running balance account
