Ledgers And The Trial Balance Flashcards
What type of account ahould be listed in the trial balance?
Only accounts that have balances
What is a nominal account?
Am account that you close at the end of each accounting period.
Give examples of nominal account.
- Product revenue
- The cost of goods sold
- Utilities expense
What is a real account?
A general ledger account that dors not close at the end of the accounting year.
Give examples of real accounts.
- Cash
- Accounts receivables
- Fixed assets
- Accounts payable
- Retained earnings
What is a personal account?
A general ledger account connected to all persons like individuals, firms and associations.
Give an example of a personal account.
Creditor account
Name the 3 classes of accounts.
- Nominal - expenses and revenue
- Real - assets
- Personal - accounts receivable and accounts payable.
State the different types of ledgers for recording nominal, real and personal accounts:
- General ledger
- Sales/accounts receivable ledger
- Purchases/accounts payable ledger
What is equity?
Your assets minus your liabilities
Assets - liabilities = equity
A - L = E
What does ‘balance brought down’ represent?
The monetary balance of a real or personal ledger account that is brought in to the books from a previous accounting period.
What is the main use of the trial balance?
To prove that the value of all the debit value balances equals the total of all the credit value balances.
List limitations of the trial balance.
- It does not prove that all transactions have been recorded.
- It does not prove that the ledger is correct.
- Numerous errors may exist even though the trial balance columns agree.
- It cannot find the missing entry from the journal.
- It cannot find the missing entry from the journal.
State ONE reason why the trial balance must always be in balance.
Dual aspect concept- every debit entry has a corresponding credit entry.
Identify errors that are not revealed by the trial balance.
- error of commission
- error of omission
- error of principle
- error of original entry
Explain error of commission.
This is when information is entered into the wrong account but in the correct ledger.
Explain error of omission.
This is when the information is not entered in the trial balance.
Explain error of principle.
This is when information is entered into the wrong account.
Explain error of original entry.
This is when wrong information is entered into the trial balance.
Give examples of non-current assets
- machinery
2. equipment
How do you calculate the working capital at the start of the new year?
working capital = current assets - current liabilities
WC = CA - CL
What is liquidity?
How easy it is for an asset to turn into cash
What term is used to describe the business if it CAN pay its liabilities as and when due?
solvent
What is contra entry?
the transfer of either from cash to bank (crediting) OR from bank to cash (debiting)
