T2 Classify and recording financial transaction

Question 1

bookkeeping definition

Answer 1

is a convention, the two main objectives of which are
> to have a permanent record of transactions
> to show the effect of each transaction and the combined effect of all the transactions upon the financial positionof the entity

Double-entry bookkeeping data are recorded as transactions that are described as ‘debits’ and ‘credits’

Question 2

debit and credit remembered using a rule:

Answer 2

transactions____________accounting entries
cash reciepts = debit cash acc, credit another acc
cash payment = credit cash acc, debit another acc
purchase invoice = credit acc payable, debit another acc
sales invoice = debit acc receivables, credit another acc

Question 3

accounting transactions

Answer 3

> purchase invoices
sales invoice
bad and doubtful debts
depreciation
prepayments
accruals
closing inventories
cash receipts
cash payment

Question 4

5 main accounting adjustment entries

Answer 4

Five main accounting adjustment entries are made that are not normally incorporated into the trial balance (although they sometimes may be in practice) prior to preparation of the income statement and balance sheet, and are:
> closing inventories
> accruals – charges not yet received
> prepayments – payments in advance
> depreciation
> bad and doubtful debts

Question 5

The five accounting adjustments and their impact on the profit and loss account and the balance sheet

Answer 5

debit CoS closing inventories credit inventories
————————————————————————
debit est cost accruals credit est accruals
————————————————————————
credit amt paid prepayments debit payment
in advanced e.g amt rent in adv
————————————————————————
debit depreciation credit cumulative
depreciation depreciation provision
————————————————————————
debit bad & bad & doubtful credit addition to
doubtful debts doubtful debts
debts charge provision

Question 6

books of account and the ledgers

Answer 6

> the main ledger held within the accounting records of a company= general ledger, or nominal ledger.
the nominal ledger= records results of all transactions made by the company (in summary/detail)
wages and salaries data= recorded in the cash books and subsequently posted to the general ledger
The original books of account, and subsidiary ledgers hold the details of transactions that are reflected in the general ledger, and are:
- cash book (receipts and payments)
- purchase invoice daybook and accounts payable (or purchase ledger)
- sales invoice daybook and accounts receivable (or sales ledger)

Question 7

the trial balance

Answer 7

> the balances on the individual accounts recorded within the general ledger may be summarised in a trial balance.
within the trial balance- total of the debit balances is = to the total of the credit balances

Question 8

income statement

Answer 8

the income statement of an entity shows the profit or loss generated by the entity during an accounting period (revenue-expenses)

Question 9

balance sheet

Answer 9

The balance sheet of an entity discloses the assets (debit balances) and liabilities, and shareholders capital (credit balances), and gains (credits) or losses (debits) as at a given date

Question 10

accrual accounting and cash accounting

Answer 10

The accruals concept embodies the principle that revenues and costs are:
> recognised as they are earned or incurred
> matched with one another
>included in the income statement of the period to which they relate regardless of when they are received or paid

> CASH ACCOUNTING= relates to the recording of receipts and payments in a period
CASH ACCOUNTING= excludes revenues and costs earned or incurred that have yet to be received or paid.

(T account illustration of accounting for accruals on moodle)

Question 11

accounting period

Answer 11

> The accounting period chosen by a business is the period of time covered by its accounting statements
Once a basis for an accounting period has been chosen then it should normally, consistently be maintained for future periods

Question 12

example- Which accounts do you debit and credit?

Answer 12

a) Bought office machinery in cash
b) Bought vehicle for cash
c) A loan of £200 is received by cheque from Earls
d) Paid for stationery by cheque
e) Paid rates by cash

____debit _____________ credit________________
a) office mach a/c credit a/c
b) motor vehicle a/c cash a/c
c) bank a/c LT loans earls a/c
d) stationery a/c bank a/c
e) rates a/c cash a/c

Question 13

double entry example:

Answer 13

> Sale of goods for £100 cash on 3 Feb.
3 steps
1) Two accounts are sales a/c and cash a/c.
2) The value enters cash a/c (DEBIT) and leaves sales a/c (flow of inventory out) (CREDIT).
3) The monetary value is £100.

Question 14

posting in ledger A/Cs

Answer 14

cash account:
date__description____£____date__I__descrip__£
3 feb sales 100 I

sales account:
date__description____£____date__I__descrip__£
I cash 100