Equations (3) Flashcards
Where on the ledger is the Debit?
The left-hand side of an account
Where on a ledger is the Credit?
The right-hand side of an account
What is a General ledger?
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.
What is a General ledger account/ T-account?
An account used to store and summarize the accounting transactions of a business entity
The equity accounts are included in the accounting equation so?
that we can keep track of the profit or loss in a company, as well as an owner’s withdrawals and contributions.
Each transaction undertaken by the entity will affect the equation in such a way that it should remain in balance. This is because?
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.
What is the The double entry principle?
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.
What is Assets = Owner’s equity + ______?
Assets = Owner’s equity + Liabilities
If a business buys trading inventory from a manufacturer using cash, how will the accounting equation be affected?
+ Assets: - Assets
If a business purchases a new delivery vehicle on credit, how will the accounting equation be affected?
+ Assets + Liabilities
How would the accounting equation be affected if a business takes out a loan of R1 000?
Assets: + R 1000
Liabilities: + R 1000
Which principle states that each transaction affects two accounts?
Double-entry principle
According to the simple accounting equation, what are assets equal to?
Owner’s equity + Liabilities
The effect of transactions on the accounting equation is analysed using the following equation?
Assets = Capital – Drawings + Income – Expenses + Liabilities
Briefly explain what a general ledger account is?
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.
If an owner contributes a vehicle to his/her business, how would this affect the accounting equation using ledger accounts?
+ Vehicles
+ Capital
Which part of the accounting equation is expanded in the extended equation?
Owner’s equity
How would the extended accounting equation be affected if a business pays R 300 for electricity in cash?
- R 300 Assets
+ R 300 Expenses
What would happen to assets if a business buys a vehicle on credit?
Increase
An increase of which two elements would increase owner’s equity?
Capital and Income
What is the basic accounting equation?
The basic accounting equation is: Assets = Equity + Liabilities
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.
True
False
False
False
True
A general ledger account appears as follows?
- 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.
A general ledger account is also referred to as a?
T-account
