Ledgers And The Trial Balance

Question 1

What type of account ahould be listed in the trial balance?

Answer 1

Only accounts that have balances

Question 2

What is a nominal account?

Answer 2

Am account that you close at the end of each accounting period.

Question 3

Give examples of nominal account.

Answer 3

1. Product revenue
2. The cost of goods sold
3. Utilities expense

Question 4

What is a real account?

Answer 4

A general ledger account that dors not close at the end of the accounting year.

Question 5

Give examples of real accounts.

Answer 5

1. Cash
2. Accounts receivables
3. Fixed assets
4. Accounts payable
5. Retained earnings

Question 6

What is a personal account?

Answer 6

A general ledger account connected to all persons like individuals, firms and associations.

Question 7

Give an example of a personal account.

Answer 7

Creditor account

Question 8

Name the 3 classes of accounts.

Answer 8

1. Nominal - expenses and revenue
2. Real - assets
3. Personal - accounts receivable and accounts payable.

Question 9

State the different types of ledgers for recording nominal, real and personal accounts:

Answer 9

1. General ledger
2. Sales/accounts receivable ledger
3. Purchases/accounts payable ledger

Question 10

What is equity?

Answer 10

Your assets minus your liabilities

Assets - liabilities = equity

A - L = E

Question 11

What does ‘balance brought down’ represent?

Answer 11

The monetary balance of a real or personal ledger account that is brought in to the books from a previous accounting period.

Question 12

What is the main use of the trial balance?

Answer 12

To prove that the value of all the debit value balances equals the total of all the credit value balances.

Question 13

List limitations of the trial balance.

Answer 13

1. It does not prove that all transactions have been recorded.
2. It does not prove that the ledger is correct.
3. Numerous errors may exist even though the trial balance columns agree.
4. It cannot find the missing entry from the journal.
5. It cannot find the missing entry from the journal.

Question 14

State ONE reason why the trial balance must always be in balance.

Answer 14

Dual aspect concept- every debit entry has a corresponding credit entry.

Question 15

Identify errors that are not revealed by the trial balance.

Answer 15

1. error of commission
2. error of omission
3. error of principle
4. error of original entry

Question 16

Explain error of commission.

Answer 16

This is when information is entered into the wrong account but in the correct ledger.

Question 17

Explain error of omission.

Answer 17

This is when the information is not entered in the trial balance.

Question 18

Explain error of principle.

Answer 18

This is when information is entered into the wrong account.

Question 19

Explain error of original entry.

Answer 19

This is when wrong information is entered into the trial balance.

Question 20

Give examples of non-current assets

Answer 20

1. machinery

2. equipment

Question 21

How do you calculate the working capital at the start of the new year?

Answer 21

working capital = current assets - current liabilities

WC = CA - CL

Question 22

What is liquidity?

Answer 22

How easy it is for an asset to turn into cash

Question 23

What term is used to describe the business if it CAN pay its liabilities as and when due?

Answer 23

solvent

Question 24

What is contra entry?

Answer 24

the transfer of either from cash to bank (crediting) OR from bank to cash (debiting)