Ledgers and trial balance

Question 1

The different types of ledgers

Answer 1

Sales ledger
General ledger
Purchases ledger

Question 2

What is the in and out method

Answer 2

anything that comes into the account will be debited and anything that goes out of the account will be credited.

Question 3

What does double entry mean

Answer 3

Double Entry means that one transaction always affects two accounts. One being a Debit entry and one being a credit entry. A Debit entry is always an asset or expense. A Credit entry is always a liability, Capital and Income/Revenue.

Question 4

What are expenses

Answer 4

The term expenses means the value of all the assets
that have been used up to obtain those revenues.

Question 5

What are revenues

Answer 5

The term revenues means the value of goods and
services that have been supplied to customers.

Question 6

Describe the different classes of accounts

Answer 6

nominal – expenses and revenue
real – assets
personal – debtors and creditors

Question 7

Distinguish between capital expenditure and revenue expenditure

Question 8

outline the uses and errors found in the trial balance

Answer 8

The trial balance serves 2 purposes:
Checks the arithmetic accuracy of the ledger work.

It facilitates the preparation of the final accounts which are:
*A. The Income Statement also known as the Trading and Profit and Loss A/c
*B. Statement of Financial Position also known as the Balance Sheet

ERRORS
Arithmetic Errors - the totals of the debits and credits of the Trial Balance or the balances of the accounts in the Ledger are wrongly calculated.

Posting Errors - a transaction may be recorded twice either on the debit side or the credit side of the two accounts involved.

Incomplete Double-Entry - a transaction may be entered only once either on the debit or credit side of the account.

Correct Entries with Different Amounts (transposition error, this can result in an understatement or overstatement of figures).

Question 9

Rules of entry for assets

Answer 9

First: Debit what comes in, Credit what goes out.
Second: Debit all expenses and losses, Credit all incomes and gains.
Third: Debit the receiver, Credit the giver.

Question 10

Rules of entry for income

Answer 10

Credit

Question 11

Rules of entry for capital

Answer 11

Credit

Question 12

Rules of entry for expenses

Answer 12

Debit

Question 13

Profit

Answer 13

Profit means the amount by which revenues are
greater than expenses for a set of transaction.

Question 14

Loss

Answer 14

Loss means the amount by which expenses are greater
than revenues for a set of transaction.

Question 15

What is balance b/d

Answer 15

Balance b/d is shown at the first of the month or period.

Question 16

What is balance c/d

Answer 16

it is shown at the end of the month or the last day of the period and becomes the balance b/d in the next period.

Question 17

Steps to take if the Trial Balance doesn’t balance:

Answer 17

1. Rewrite the trial balance legibly.
2. Recalculate
3. Find the amount it’s off by and look for a transaction of this amount and ensure the double entry is carried out.
4. Find the amount it’s off by and halve it to ensure the double entry has been carried out.
5. See the amount it’s off by can be divided by 9 it indicates an error of transposition.
6. Ensure that the balances in the ledger are correctly calculated and entered into the right column in the Trial Balance.

Question 18

Accounts with Debit Balances

Answer 18

Assets
Expenses
Purchases
Drawings
Discount allowed
Returns Inwards

Question 19

Accounts with Credit Balances

Answer 19

Revenue
Income
Capital
Liabilities
Sales
Discount received
Returns Outwards

Question 20

Limitations of Trial Balance

Answer 20

It may hide errors of omission. Some transactions are not journalised at all.