Introduction to bookeeping - Double entry

Question 1

What is the accounting equation

Answer 1

Assets – liabilities = capital

Question 2

Current assets vs non current

Answer 2

current - short term e.g trade rec (people that owe credit money to the buisness) , inventory and money in the bank

Question 3

What is a liability

Answer 3

amount owed by the buisness, trade payables (people they have bought credit supplies off), bank overdraft/loan

Question 4

What is capital

Answer 4

Amount an owner has invested into the business

(businesses use to fund their operations, including cash, machinery, equipment, and other assets.
Funds used to finance a company’s operations and growth, which can come from various sources such as equity and debt)

Question 5

revenue expenditure is running costs , capital exp is improvement

Capital revenue vs capital income

Specific type of income, and specific type of spending

Answer 5

Capital income: ‘one off’- Money received from non-routine, day to day transactions such as:
income from sale of non-current asset
Owner capital into business
bank loans

Capital Expenditure: money spent on purchasing or improving non-current assets.
delivery costs
installation
legal costs
improvement costs but not repair (e.g new office desks)

revenue expenditure is running costs , capital exp is improvement

Question 6

Revenue income vs revenue expenditure

Specific type of income, and specific type of spending

Answer 6

Revenue Income: money receives in respect of day to day, routine transactions such as sales.

Revenue expenditure: money spent in day to day running costs of the business:
Fuel and tax
Redecoration
Wages

revenue expenditure is running costs , capital exp is improvement

Question 7

Gain/loss in capital is only recorded on the statement of ____ and will not effect the _______

Answer 7

only recorded on statement of financial position.

Will not effect profit and loss.

Question 8

What are some examples of tax deductables

things that are deducted before calculating tax, deducted from gross

Answer 8

Anything that is used in the running of non-current assets
1. Fuel/ road tax

Question 9

Split these into revenue expenditure / capital expenditure and capital e

Split these into revenue expenditure / capital expenditure and capital expense/ revenue expense

1. Van purchase
2. Fuel and road tax
3. Factory purchase
4. Legal costs
5. Air conditioning
6. Installation costs
7. Redecoration
8. New flooring

Answer 9

Capital Expenditure: money spent on purchasing or improving non-current assets.
Revenue expenditure: money spent in day to day running costs of the business

1. Van is a capital expense (bc its non-current asset)
2. Fuel and road tax = revenue expenditure
3. Factory purchase = capital expense as it’s a non-current asset
4. Legal costs are also a capital expenditure as they are not a day to day running cost but came with the purchase
5. Air conditioning = non-current asset so capital expenditure
6. Installation costs = capital expenditure
7. Redecoration = **revenue expense: not capital expense, as counts as repairs and maintenance **.
8. New flooring= improvement so capital expenditure,

Revenue - day to day running costs of the business

Question 10

Fill in wether these are capital expenditure or revenue

Answer 10

Its installation is done by employees= capital expenditure even if carried out internally. Cost calc= wages + installation + flooring

Question 11

What are 3 debits and 3 credits

Answer 11

Question 12

Statement financial position = includes assets and liabilities

Statement profit and loss = includes expenditure and income

Question 13

What are drawings

Answer 13

withdrawals by owner which reduces liability owed to them

Question 14

A debit entry would increase…. and a credit entry would increase….

Answer 14

e.g a debit entry would increase expenses but decrease liabilties.

A credit entry would increase an item of income, and decrease expenditure

Question 15

Description of each

Answer 15

1. Expenses - everyday running costs of buisness (always debits)
2. assets - owned and used by buisness
3. drawings - owner taking money out
4. liabilites - owed
5. **income **- everyday income, normally sales (always credits)
6. Capital - normal capital (equity), capital income and capital expenditure

Dr bank means assets have increased apparently

Question 16

There are 3 types of capital: normal capital (equity), capital income and capital expenditure. What do each of them describe?

Answer 16

Equity - The amount invested by the owner / partner of the business. It includes any profit / loss generated by the business less any Drawings taken by the owner.

Capital income - One off income streams - e.g. bank loan, selling an asset

Capital expenditure - Expenditure on capital items - non-current assets

Question 17

The amount owed to a buisness by a credit customer is an …

Answer 17

asset

Question 18

Answer 18

Question 19

How would you record the sale of good worth £500 to a credit customer ‘Hotel A’

Answer 19

Debit the account of Hotal A with £500
Credit the sales account with £500 (would be noted from Hotel A)

working - **sales are always CR **under whoever you sold it to (e.g sale of £500 to Hotel A would be put in sales). DR off the account that the sale was for (Hotel A)

Sale of good is DR to the business name and CR to the sales account

Question 20

How would you record the purchase by cheque of a laptop for the office for a cost of £800

Answer 20

Debit the Bank Account with £800. Credit the Office Equipment Account with £800

Dr bank means assets have increased apparently

dont get this. I would do other way around. is it to do with cheque?

Question 21

If the buisness pays for rent with cheque, what has increased

Answer 21

expenses. This means the account name would go under debit (rent account)

Question 22

Whats does a sale increase / decrease

Answer 22

Sale is always credit, because a it has increased income, and decreased assets