principles of account Flashcards
One reason why a trial balance must always be in balance
the answer for this is that, in a trial balance the value of the debit entries must be equal to the value of credit entries.
two errors that are not revealed by the trial balance
error of omission, error of commision, error of principle.
what is error of commission ?
This is when you debit the wrong persons account
what is error of principle ?
this is when the account is placed incorrectly in the system.
what is the complete reversal of entries?
this is where the account which was supposed to be debited was credited and vice versa.
things that we expect to last longer than 1 year
what are non current assets
examples
Non-current assets are for long-term use by the business and are expected to help generate income.
machinery and equipment
what are current liabilites
example
the short term obligations that are expected to be paid within a year
accounts payable
what is working capital
calculation
It’s the money you have available for your day-to-day operations.
calculated as the current assets minus the current liabilities.
what is accounts receivable
asset or liability
money owed to a company by its debtors.
asset
what is accounts payable
asset or liability
money owed by a company to its creditors.
liability
what is liquidity
the ease of conversion of an asset to cash
what term describes the reduction in the value of equipment
depreciation
what are creditors and debtors
creditors are like the givers
debtors are the receivers
what are current assets
examples
hese are things you own that can be quickly turned into cash within a year,
cash, accrued revenues, prepaid expenses
non current liabilities
obligations that are not expected to be paid within one year.
account: Anil A Credit Customer ? Which ledger
Sales ledger
how many ledgers are there ?
3 ledgers
purchases
sales
general
what is your sales ledger for
any business to whom you have sold goods on credit
what is your purchases ledger for ?
any entity from whom you have purchased on credit or anybody who you owe money to
what is your general ledger for ?
holds all other assets, liabilities, expenses
which ledger is purchases return found
Thegeneral ledger
which ledger is the cash account found
the general ledger
Return inwards
Sold goods and some were returned
return outwards
bought goods and sent some back
carriage inwards
delivery charges on goods
carriage outwards
Carriage outwards is basically the money a business spends to ship stuff out to its customers.
what are expenses ?
Expenses are costs incurred by a business to generate revenue.
why do expenses have debit balances ?
So, when you spend money on expenses, like buying supplies for your business, you record that as a debit in your expense account.
what is equity
. It represents the residual interest in the assets of a business after deducting its liabilities. In simpler terms, equity is what’s left over for the owners of the business after all debts and obligations have been paid off.
