Week 3 business transactions cont, ledgers and journals

Question 1

define an account

Answer 1

account is an
– individual accounting record; of
– increases and decreases; in a
– specific asset, liability or owner’s equity item.

–	specific asset, liability or owner’s equity item.
Examples:
o	Cash
o	Accounts Payable
o	Capital Contributed
o	Service Revenue
o	Wages Expense

Question 2

define a debit

Answer 2

An accounting entry on the left-side that will; increase an asset account, decrease a liability account and decrease owners’ equity account

Question 3

Define a credit

Answer 3

An accounting entry recorded on the right side of an account, will decrease an asset increase a liability increase an owner’s equity item

Question 4

What is the extended accounting equation

Answer 4

Assets = Liabilities + (Capital – Drawings) + (Revenue – Expenses)
Which can be rearranged as:

Assets + Drawings + Expenses = Liabilities + Contributions + Revenue

Question 5

How would an 1.) increase and 2.) decrease of the following elements be recorded

Asset	
Liability	
Owner’s Equity	
(e.g. Capital contribution)	
(e.g. Drawings by owner)
Revenue	
Expenses

Answer 5

Asset	DR	CR
Liability	CR	DR
Owner’s Equity	CR
(e.g. Capital contribution)	DR
(e.g. Drawings by owner)
Revenue	CR	DR
Expenses	DR	CR

Question 6

general journal format includes

Answer 6

o Date of transaction
o Accounts involved
o Amount of transaction
o Brief narration to describe transaction (least important)

Question 7

Steps in journalising transactions

Answer 7

1. Which elements are affected?
2. e.g. Asset, Liability, Owner’s Equity, Revenue, Expenses
3. Which specific accounts are affected?
   e. g. Cash, wages expense, bank loan, etc…
4. Are the items increasing or decreasing?
5. Do we Debit (left) or Credit (right)?

Question 8

explain general ledgers

Answer 8

o 6 steps for posting to ledgers

• Posting from general journal to general ledger is the second step of the accounting process
• Ledger accounts are a way of presenting and grouping transactions relating to a particular account (eg. Cash account, Capital account etc.)
• At the end of the financial period, the closing balance of each individual account is calculated
After conducting a general journal calculates different transactions (e.g. cash at bank account)

Question 9

General rule for debit and credit

Answer 9

Asset + Drawing + expense (increase = debit / decrease = credit)
= Liability + capital + revenue (increase = credit / decrease = debit)

Question 10

how to record credit sales

credit purchases

Answer 10

account receivable

account payable

Question 11

how to record accumulated depreciation

Answer 11

asset

Question 12

how to record depreciation

Answer 12

expense

Question 13

how to record a prepaid expense

Answer 13

asset

Question 14

Example of General Journal Process

1 Jan 2016: Loc Nguyen (owner) contributed $15,000 cash to the business
Analysis of transaction:

Answer 14

element: cash (asset) increase debit

element OE increase credit

Question 15

posting to ledgers

Answer 15

Refer to general journal to determine which accounts were debited and credited

Enter date in account to be debited
Enter name of the corresponding account that was credited
Enter amount to be debited
Repeat steps 1-4 for the credit side
At the end of financial period, calculate the closing balance

Question 16

what is the accounting process

Answer 16

:)