Unit 3 Acc Chapter 03 Review Questions (General Ledger)

Question 1

RQ 3.1 // Ledger Accounts

Q1. Explain the role of a ledger account.

Answer 1

A ledger account is an accounting record where transactions are written down, with a separate ledger account for each item in the firm’s records.

Question 2

RQ 3.1 // Ledger Accounts
Q2	In reference to ledger accounts, define the following terms:
●	General Ledger
●	debit side
●	credit side

Answer 2

● General Ledger – the collective name for the main group of ledger accounts

● debit side – the ‘left’ side of the ledger account

● credit side – the ‘right’ side of the ledger account.

Question 3

RQ 3.2 // Double Entry Recording in Ledger Accounts

Q1. State the two rules of recording in ledger accounts.

Answer 3

1) Every transaction must be recorded in at least two ledger accounts.
2) Every transaction must be recorded on the debit side of one ledger account and the credit side of another.

Question 4

RQ 3.2 // Double Entry Recording in Ledger Accounts
Q2. Identify on which side of a ledger account a transaction would be recorded in order to:
● increase an asset account
● decrease an asset account
● increase a liability or owner’s equity account
● decrease a liability or owner’s equity account

Answer 4

● increase an asset account – debit side

● decrease an asset account – credit side

● increase a liability or owner’s equity account – credit side

● decrease a liability or owner’s equity account – debit side.

Question 5

RQ 3.3 // Recording in Ledger Entries

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Answer 5

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Question 6

RQ 3.3 // Recording in Ledger Entries

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Answer 6

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Question 7

RQ 3.3 // Recording in Ledger Entries

There were no Review Questions for 3.3 but

Answer 7

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Question 8

RQ 3.4 // Recording Rules for Revenues & Expenses
Q1. Referring to their relationship to owner’s equity, explain why:
● revenue accounts increase on the credit side
● expense accounts increase on the debit side

Answer 8

● revenue accounts increase on the credit side – revenue represents an increase in owner’s equity, so a revenue is recorded on the credit side

● expense accounts increase on the debit side – expenses represent a decrease in owner’s equity, so an expense is recorded on the debit side.

Question 9

RQ 3.4 // Recording Rules for Revenues & Expenses

Q2. Draw a table to summarise the rules for recording in ledger accounts.

Answer 9

ASSETS:
Increase: Debits
Decrease: Credits

LIABILITIES:
Increase: Credits
Decrease: Debits

OWNER’S EQUITY:
Increase: Credits
Decrease: Debits

REVENUE:
Increase: Credits
Decrease: Debits

EXPENSES:
Increase: Debits
Decrease: Credits

Question 10

RQ 3.4 // Recording Rules for Revenues & Expenses

Q2. Draw a table to summarise the rules for recording in ledger accounts.

Answer 10

ASSETS:
Increase: Debits
Decrease: Credits

LIABILITIES:
Increase: Credits
Decrease: Debits

OWNER’S EQUITY:
Increase: Credits
Decrease: Debits

REVENUE:
Increase: Credits
Decrease: Debits

EXPENSES:
Increase: Debits
Decrease: Credits

Question 11

RQ 3.4 // Recording Rules for Revenues & Expenses

Q3. Explain the role of an Analysing Chart.

Answer 11

An Analysing Chart is a tool used to identify the steps for recording transactions in the General Ledger.

Question 12

RQ 3.5 // Some Challenging Entries
Q1. Part A:
Show the debit and credit entries necessary to record:
● a cash sale of stock

Answer 12

BANK:
Debit

SALES:
Credit

COST OF SALES:
Debit

STOCK CONTROL:
Credit

Question 13

RQ 3.5 // Some Challenging Entries
Q1. Part B:
Show the debit and credit entries necessary to record:
● a credit sale of stock

Answer 13

DEBTOR’S CONTROL:

SALES:

COST OF SALES:

STOCK CONTROL:

Question 14

RQ 3.5 // Some Challenging Entries
Q1. Part C:
Show the debit and credit entries necessary to record:
● a receipt from a debtor

Answer 14

BANK:

DEBTOR’S CONTROL:

Question 15

RQ 3.5 // Some Challenging Entries
Q1. Part D:
Show the debit and credit entries necessary to record:
● cash drawings.

Answer 15

DRAWINGS:

BANK:

Question 16

RQ 3.5 // Some Challenging Entries
Q1. Part D:
Show the debit and credit entries necessary to record:
● cash drawings.

Answer 16

DRAWINGS:

BANK:

Question 17

RQ 3.5 // Some Challenging Entries

Q2. Explain why a receipt from a debtor does not increase profit.

Answer 17

A receipt from a debtor does not increase assets overall and so it does not fit the definition of a revenue.

In addition, recording a receipt from a debtor as revenue would be double-counting the revenue; the revenue was already recorded when it was earned at the point of sale (when the goods were provided to the customer).

Question 18

RQ 3.6 // The Trial Balance

Q1. State the purpose of a Trial Balance.

Answer 18

A Trial Balance is used to determine if total debits equal total credits.

Question 19

RQ 3.6 // The Trial Balance

Q2 Referring to ledger accounts, state what is meant by the term ‘footing’.

Answer 19

Footing is an informal process used to determine the balance of a ledger account.

Question 20

RQ 3.6 // The Trial Balance

Q3. List the steps involved in footing a ledger account.

Answer 20

1) Add up all the amounts on the debit side, and pencil this total below the last debit amount.
2) Add up all the amounts on the credit side, and pencil this total below the last credit amount.
3) Deduct the smaller total from the larger total.
4) Pencil this figure – the balance – on the side of the larger total, and draw a circle around it.

Question 21

RQ 3.6 // The Trial Balance

Q3. List the steps involved in footing a ledger account.

Answer 21

1) Add up all the amounts on the debit side, and pencil this total below the last debit amount.
2) Add up all the amounts on the credit side, and pencil this total below the last credit amount.
3) Deduct the smaller total from the larger total.
4) Pencil this figure – the balance – on the side of the larger total, and draw a circle around it.

Question 22

RQ 3.6 // The Trial Balance

Q4. State three errors that will be detected by the preparation of a Trial Balance.

Answer 22

● Two entries have been recorded on the same side of the ledger.

● Only one entry has been recorded (for example, one debit entry without a corresponding credit entry, or vice versa).

● Different amounts have been recorded on each side.

Question 23

RQ 3.6 // The Trial Balance

Q5. State four errors that will not be detected by the preparation of a Trial Balance.

Answer 23

● A transaction has been omitted altogether.

● The debit and credit entries have been reversed.

● The transaction has been recorded in the wrong ledger account (but on the correct side).

Question 24

RQ 3.6 // The Trial Balance

Q5. State four errors that will not be detected by the preparation of a Trial Balance.

Answer 24

● A transaction has been omitted (excluded) altogether.

● The debit and credit entries have been reversed.

(e.g: recording payment to a creditor by debiting Creditor’s Control and crediting Bank.
The entry would then be incorrectly recorded as debit to Bank and credit to Creditor’s Control)

● The transaction has been recorded in the wrong ledger accounts (but on the correct side).

(e.g: instead of recording payment in wages as debit to Wages account, transaction is incorrectly debited to Rent)

● An incorrect amount is recorded on both sides of the ledger.

Question 25

RQ 3.7 // Balancing

Q1. List three differences between footing and balancing a ledger account.

Answer 25

● Balancing is done only at the end of the Reporting Period.

● Only asset, liability and owner’s equity accounts are balanced.

● Balancing is a more formal process, involving a proper double entry.

Question 26

RQ 3.7 // Balancing

Q2. List the steps involved in balancing a ledger account.

Answer 26

1) Total the amounts on each side, and write the larger of these totals on both sides. This figure is ‘ruled off’ with a double line.
2) Calculate the balance by deducting the total of the smaller side from the total of the account.

3) Enter this balance (using the last day of the Reporting Period) as a proper ledger entry with a matching debit and credit above the total on the smaller side and below the total on the larger side.
The date below the double lines should be entered as the first day of the next Reporting Period.

Question 27

RQ 3.7 // Balancing

Q3. Explain why the entries required to balance a ledger account are shown with different dates.

Answer 27

The entry above the total represents the balance carried forward from the end of one Reporting Period, and the entry below the total represents the balance brought forward to the beginning of the next Reporting Period.