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AP > Equations (3) > Flashcards

Equations (3) Flashcards

1
Q

Where on the ledger is the Debit?

A

The left-hand side of an account

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2
Q

Where on a ledger is the Credit?

A

The right-hand side of an account

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3
Q

What is a General ledger?

A

A business entity’s set of numbered accounts forms the system of accounting, in which business financial transactions are recorded

A general ledger (GL) is a set of numbered accounts a business uses to keep track of its financial transactions and to prepare financial reports. Each account is a unique record summarizing a specific type of asset, liability, equity, revenue or expense.

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4
Q

What is a General ledger account/ T-account?

A

An account used to store and summarize the accounting transactions of a business entity

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5
Q

The equity accounts are included in the accounting equation so?

A

that we can keep track of the profit or loss in a company, as well as an owner’s withdrawals and contributions.

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6
Q

Each transaction undertaken by the entity will affect the equation in such a way that it should remain in balance. This is because?

A

In financial accounting, each transaction affects at least two accounts; this is an accounting principle known as the double entry, and is the base of our accounting system.

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7
Q

What is the The double entry principle?

A

if applied correctly, ensures that where the left-hand side of the equation has increased or decreased, there will be a corresponding increase or decrease on the right-hand side. It is also possible that a transaction can result in a decrease and increase of only one side of the equation (right or left), such that both sides have a nil balance and the equation remains in balance. Where the accounting equation does not balance, the reason must be investigated and corrected.

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8
Q

What is Assets = Owner’s equity + ______?

A

Assets = Owner’s equity + Liabilities

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9
Q

If a business buys trading inventory from a manufacturer using cash, how will the accounting equation be affected?

A

+ Assets: - Assets

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10
Q

If a business purchases a new delivery vehicle on credit, how will the accounting equation be affected?

A

+ Assets + Liabilities

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11
Q

How would the accounting equation be affected if a business takes out a loan of R1 000?

A

Assets: + R 1000
Liabilities: + R 1000

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12
Q

Which principle states that each transaction affects two accounts?

A

Double-entry principle

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13
Q

According to the simple accounting equation, what are assets equal to?

A

Owner’s equity + Liabilities

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14
Q

The effect of transactions on the accounting equation is analysed using the following equation?

A

Assets = Capital – Drawings + Income – Expenses + Liabilities

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15
Q

Briefly explain what a general ledger account is?

A

an entity’s summary of transactions. General ledger accounts depend on the nature of an entity’s business, and examples of such accounts include bank, trade receivables, trade payables, capital, loans etc.

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16
Q

If an owner contributes a vehicle to his/her business, how would this affect the accounting equation using ledger accounts?

A

+ Vehicles
+ Capital

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17
Q

Which part of the accounting equation is expanded in the extended equation?

A

Owner’s equity

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18
Q

How would the extended accounting equation be affected if a business pays R 300 for electricity in cash?

A
  • R 300 Assets
    + R 300 Expenses
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19
Q

What would happen to assets if a business buys a vehicle on credit?

A

Increase

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20
Q

An increase of which two elements would increase owner’s equity?

A

Capital and Income

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21
Q

What is the basic accounting equation?

A

The basic accounting equation is: Assets = Equity + Liabilities

22
Q

Indicate whether the following statements are true or false.

  • A loss will result in a decrease in owner’s equity.
  • Income and expenses are not part of the accounting equation.
  • An expense causes an increase in owner’s equity.
  • The accounting equation will not balance if a transaction only affects assets.
  • If a business owner takes goods from the business for personal use, the components of the accounting equation that are affected are assets and owner’s equity.
A

True
False
False
False
True

23
Q

A general ledger account appears as follows?

A
  • Date
  • Details
  • Folio
  • Amount:
  • Date: refers to the date of the transaction. For example, 15 January 20.18.
  • Details: refers to the other account (known as the contra account) which is affected by the transaction. For example, the contra account for Bank when trading inventory is purchased for cash is trading inventory.
  • Folio: refers to the journal from which the transaction has been posted. For example, the payment of salaries and wages is recorded in the cash payments journal (CPJ1). Therefore, your folio would be CPJ1.
  • Amount: refers to the amount that was transacted for – i.e. if salaries and wages amounted to R 300 000, then you would record R 300 000 in the amount column.
24
Q

A general ledger account is also referred to as a?

A

T-account

25
Q

These are acronyms that summarise the effect of transactions on elements of financial statements as follows?

A

-DEAD stands for debit expenses, assets and drawings
- CLIC stands for credit liabilities, income and capital

26
Q

Expenses?

A

assets and drawings increase on the debit side (DEAD) and decrease on the credit side. This means that an increase in expenses, assets and drawings will be shown on the debit side of these accounts (debited), while a decrease will be shown on the credit side (credited).

27
Q
A

Liabilities, income and capital increase on the credit side (CLIC) and decrease on the debit side. This means that an increase in liabilities, income and capital will be shown on the credit side of these accounts (credited), while a decrease will be shown on the debit side (debited).

28
Q

Explain the four question?

A

To correctly analyse the effect of transactions on the accounting equation, and therefore on the general ledger, there are four questions that you need to ask yourself each time you deal with a transaction:
- Which accounts are involved in (or affected by) the transaction?
- What type of accounts are they?
- Are the accounts increasing or decreasing?
- Which account should be debited and which account should be credited?

29
Q

What is another name for a ledger account?

A

T-account

30
Q

What will happen to the bank account if a business pays off a liability?

A

Credit

31
Q

Which accounts are debited in the ledger when they are increased?

A

Expenses, Assets, Drawings

32
Q

Which of the following accounts would decrease on the debit side?

A

Liabilities

33
Q

If a business sells inventory on credit, which two accounts will be affected?

A

-Trading inventory
+Trade receivables

34
Q

Summer Daze (Pty) Ltd is a company that sells hair related products and provide hairdressing services. What is the effect on the accounting equation when they buy shampoo for R5000 cashfrom their supplier?

A

Bank-R5000
Inventory +R5000

35
Q

What would bank and inventory be classified as?

A

Bank asset
Inventory: asset

36
Q

Which account will be debited when Summer Daze (Pty) Ltd pays its monthly bond payment on the property?

A

Loan

37
Q

Summer Daze (Pty) Ltd earns R50 000 for product sales. Which two accounts are affected here?

A

Debit Bank
Credit Sales

38
Q

Which accounts are involved in (or affected by) the transaction?

A
  • Bank, and
  • Trading inventory.
39
Q

What type of accounts are Bank, and Trading inventory?

A

Both accounts are assets (Bank, and Trading inventory.)

40
Q

Are the accounts increasing or decreasing?

A

Bank is decreasing as there is an outflow of cash, and trading inventory is increasing.

41
Q

Are the accounts increasing or decreasing?

A

Bank is decreasing as there is an outflow of cash, and trading inventory is increasing.

42
Q

When selling your products, Which account should be debited, and which account should be credited?

A

+ Bank, - Trading inventory

43
Q

If a business pays off a portion of a loan, which two accounts are affected?

A
  • Debit Loan
    + Bank
44
Q

How would the accounting equation be affected if a business takes out a loan of R1000?

A

Assets: + R 1000
Liabilities: + R 1000

45
Q

An increase in which two accounts would decrease owner’s equity?

A

Drawings and Expenses

46
Q

Which accounts are credited in the general ledger when they are increased?

A

Liabilities, Income, Capital

47
Q

What would bank and inventory be classified as?

A

asset

48
Q

Which accounts make up owner’s equity in the extended accounting equation?

A
  • Drawing
  • Income,
  • Capital
  • Expenses

(DICE = Owners’s Equity)

49
Q

What would bank and inventory be classified as?

A

Bank: asset
Inventory: asset

50
Q

What would happen to assets if a business buys a vehicle on credit?

A

Increase

AP (9 decks)

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