S1L3 Bookkeeping No.1

Question 1

What are the 3 main principles of bookkeeping?

Answer 1

• Dual effect
• Separate entity concept
• Accounting Equation

Question 2

What is the Dual Effect?

Answer 2

Every transaction a business has will have at least two effects

Question 3

Example scenario of the Dual Effect (inc. a car)

Answer 3

• Business buys a car - cash has gone down, but an asset has been gained
• Business sells goods for cash - less stock, more cash
• Business sells goods on credit - less stock (inventory), increase in receivables

Question 4

What is the Separate Entity Concept?

Answer 4

A business entity is separate from its owner(s)
- Activities of the business should be kept separate from the activities of the owners

Question 5

How does the accounting equation and the dual effect link?

Answer 5

• Every transaction has two effects on the accounting equation
• If assets increase, then liabilities or capital must increase, or another asset must fall.

Question 6

What is the Nominal Ledger?

Answer 6

The nominal ledger (aka general ledger) has a page (an account) for every item that appears on the Balance sheet or Income statement

Question 7

What is a ledger?

Answer 7

A book

Question 8

What is a ledger account?

Answer 8

A page in the ledger

Question 9

What does each page in a nominal ledger look like?

Answer 9

Each page (account) has two columns
A debit side and a credit side

Question 10

What side is the debit side in a nominal ledger account?

Answer 10

Left side

Question 11

What side is the credit side in a nominal ledger account?

Answer 11

Right side

Question 12

What is each page in a nominal ledger often referred to?

Answer 12

A ‘T’ account

Question 13

What does DEADCLIC stand for?

Answer 13

Debit if it’s an increase in
- Expenses
- Assets
- Drawings
Credit if it’s an increase in
- Liabilities
- Income
- Capital