Week 1&2: Double Entry

Question 1

Accounting Equation

Answer 1

Assets = Liabilities + Capital

Question 2

Accounting Period Equation

Answer 2

Assets + Expenses = Liabilities + Capital + Income

Question 3

Debit/Credit Rule

Answer 3

1) Assets + Expenses are accounts with Dr balances
2) Liabilities + Capital + Income are accounts with Cr balances
3) Total Dr = Total Cr

Question 4

Debit/Credit Rule 2

Answer 4

• If a transaction increases assets or expenses: Debit them
• If a transaction decreases assets or expenses: Credit them

Opposite with Liabilities, Capital and Income

Question 5

Credit balance or Debit balance

1) Sales Account
2) Purchase Account
3) Sales returns
4) Purchase returns

Answer 5

1) Sales = Income = Credit balance
2) Purchase = Expense = Debit balance
3) Sales returns = Debit balance
4) Purchase returns = Credit balance

Question 6

What happens at the end of the accounting period?

Answer 6

• Income and expense accounts relating to that period are closed down by transferring all balances to a P and L holding account
• The balances on assets, liabilities and capital are brought forward to the next period

Question 7

List 5 Errors that could occur in a trial balance sheet

Answer 7

1) Error of omission
2) Reverse entry
3) Wrong amount
4) Wrong account
5) Compensating errors