Recording

Question 1

What is the golden rule of recording?

Answer 1

For every debit there is an equal and opposite credit.

Question 2

What is the left hand side of the account called?

Answer 2

Debit side

Question 3

What is the right hand side of the account called?

Answer 3

Credit side

Question 4

Where are all accounts housed?

Answer 4

In the general ledger

Question 5

Where do we keep a record of each entry to be made?

Answer 5

in journals

Question 6

In the assets column debit left hand side column is?

Answer 6

Positive

Question 7

In the assets column credit right hand side column is?

Answer 7

Negative

Question 8

True or false, for the Equity and liabilities column, + and - switch from debit to credit and vice versa?

Answer 8

True

Question 9

What is balance carried down?

Answer 9

Balance carried down represents the monetary balance of a real or personal ledger account that carried forward to the subsequent accounting period, in order to close off accounts.

Question 10

What is balance brought down?

Answer 10

Balance brought down is the opening balance of a ledger account that is brought into the books from a previous accounting period. (In order to reflect the past months balance in the beginning of the new ledger)

Question 11

What is a trial balance?

Answer 11

A list of all the accounts in the general ledger and their closing balances at a point in time, total DR should equal total CR.

Question 12

If a trial balance balances i.e DR=CR does this mean that the general ledger is definitely correct? (5)

Answer 12

No, as the bookkeeper may have:

1. Left out an entry
2. Used the incorrect amount on both debit and credit entries
3. DR or CR the incorrect account
4. 2 Errors that cancelled each other out
5. Recorded the DR and CR entries on the incorrect side

Question 13

What have we actually done by using the information on the trial balance? (3)

Answer 13

1. Calculated profit for the period
2. Shown the effect of profit on retained earnings
3. Shown the effect of drawings on retained earnings

Question 14

How is retained earnings calculated?

Answer 14

Profit-Drawings

Question 15

How is this processed in the general ledger?

Answer 15

(By processing closing entries)
- Income, expenses and drawings are temporary accounts and are “closed off’. The balances in these accounts do not get carried forward from one year to the next. Closing entries are transactions that allow for these accounts to be netted off to zero.

Question 16

How does this have an effect on equity?

Answer 16

Through business operations (i.e. profit/loss) and drawings get carried forward from one year to the net through retained earnings. Closing entries allow for this in the general ledger

Question 17

When are closing entries processed?

Answer 17

When the business wants to prepare financial statements.

Question 18

What transactions are involved in closing entries? (3)

Answer 18

1. All income and expense accounts will be closed off to a profit or loss account. The profit/loss account calculates the profit/loss for the period.
2. The profit/loss will be closed off to the retained earnings account
3. Drawings will be closed off to retained earnings

Question 19

What is not presented on the post-closing trial balance?

Answer 19

No income and expenses are reflected as they are closed off to the profit/loss ledger.