Week 3 - Recording transactions, double-entry bookkeeping and the trial balance

Question 1

What are ledger accounts?

Answer 1

they summarise all the individual entries from the books of prime entry. These summary records are used to prepare the trial balance and the financial statements
usually called ‘the accounts’

Question 2

What is the nominal (general) ledger

Answer 2

the accounting record which contains the main ledger accounts. This will include separate ledger accounts for asses, liabilities, capital, income and expenses

Question 3

How do you transfer entries to the ledger accounts from the books of original entry?

Answer 3

Eg get the total sales and total returns, now we have two accounts, then bring the sales figure into the sales account and then the sales return

Question 4

What are T accounts

Answer 4

ledger accounts kept manually,
Draw a big T then have two sides, left side called debit and right, credit

Question 5

Are ledger accounts computerised or manual?

Answer 5

computerised but if kept manually then T accounts

Question 6

What is the dual aspect/ accounting concept of duality

Answer 6

each transaction affects the accounting records twice, double entry bookkeeping is the method or technique used to record the business’ transactions

Question 7

What is the main purpose of double-entry bookkeeping?

Answer 7

to allow the business to assess its income, expenses, assets and liabilities and be able to prepare its financial statements using this information

Question 8

What is the accounting equation at the beginning of the period

Answer 8

OB/ opening balance

OB Asses = OB Liabilities + OB Equity

Question 9

What is the accounting equation over of the period (eg over one year)?

Answer 9

The company makes profit, this goes to equity
The company issues new share capital or repurchase (reduce) capital, these changes in share capital goes to equity

Question 10

What is the accounting equation at the end of the period

Answer 10

CB / closing balance
CB Assets = CB Liabilities + OB Equity + Profit + Change Equity Capital

Question 11

What is the fully rearranged accounting equation?

Answer 11

Assets + Expenses = OB Equity + Liabilities + Revenue + Change in Equity Capital

Question 12

Why are assets and expenses on the left side of the equation

Answer 12

this shows if we have some money, where we spend the money
we can spend it on purchases of new assets like new machines, equipment, property
also pay bills, salary

debits left hand side

Question 13

Where do we get the money from on the right hand side of the equation?

Answer 13

Sales/ Revenue from the customers

money from the owners (equity from owners) or new share capital/ owners/ shareholders contribute money

borrow money (liabilities)

credits right hand side

Question 14

What do you say instead of increasing assets or increasing expenses

Answer 14

we debit the asset or debit the expense

Question 15

What do you say instead of increasing revenue, liabilities or equity capital?

Answer 15

we credit the revenue
we credit the liabilities
we credit the equity capital

Question 16

What do you say instead of decreasing assets or decreasing expenses

Answer 16

we credit the asset or credit the expense

Question 17

What do you say instead of decreasing revenue, liabilities or equity capital?

Answer 17

we debit the revenue
we debit the liabilities
we debit the equity capital

Question 18

What can you put in the left side (debit) on the T account?

Answer 18

increases in assets
increases in expenses

decreases in liabilities
decreases in revenues
decreases in equity

Question 19

What can you put in the right side (credit) on the T account?

Answer 19

decreases in assets
decreases in expenses

increases in liabilities
increases in revenues
increases in equity

Question 20

What are always equal across all the accounts in total (not in each individual ledger account)

Answer 20

the debit and credit affect

Question 21

What do debit entries (left hand side of T account) increase?

Answer 21

assets and expenses

Question 22

What do debit entries (left hand side of T account) decrease?

Answer 22

liabilities, equity and revenue/ income

Question 23

What do credit entries (right hand side of T account) increase?

Answer 23

liabilities, equity and revenue/ income

Question 24

What do credit entries (right hand side of T account) decrease?

Answer 24

assets and expenses

Question 25

How much does each T account recall?

Answer 25

only recalls one item of the transaction

Question 26

What do we need to show within T accounts?

Answer 26

the date, description and the amount

Question 27

What are the 3 steps in recording a transaction in the double entry accounts

Answer 27

1. Identify whether it affects assets, liabilities and equity (as well as income and expense)
2. Identify whether the asset, liability or equity is increasing or decreasing (as well as income and expense)
3. Look at the financial amount

Question 28

What does a journal record when a transaction is made?

Answer 28

it records the double entry for the transaction, the bookkeeper uses the journal to enter the transaction in the accounts. T accounts are a simplified version of these accounts

Question 29

How do we use double entry book keeping to record transactions?

Answer 29

journals and T accounts

Question 30

What happens with balancing off ledger (T) accounts at the end of the accounting period?

Answer 30

all the companys transactions will have been entered in the ledger accounts

ledger accounts are then balanced off. This means they are closed for that period and a new account is started for the next period

a lis of balances is taken from the ledger accounts to prepare the trial balance which is used to prepare the financial statements

Question 31

What is the time period/ periodicity concept

Answer 31

the life of the entity can be divided into specific periods to allow for the preparation of financial statements

Question 32

How to balance off an an account?

Answer 32

a closing entry is made, this makes both sides in the T account equal.

You calculate the balancing figure as the difference between two sides of the T account

The type of closing entry differs with the type of account

Question 33

How to close off an accounts for revenue and expenses (Statement of profit/ loss)?

Answer 33

the ledger is closed off to zero and a new account is opened next period with no opening balance

Question 34

How to close off an accounts for assets, liability and equity accounts (Statement of Financial position)?

Answer 34

the closing balance is carried down to the next period and becomes the balance brought forward, or the opening balance in the next period

Question 35

What is it called when the total amount of money on the debit side of an account is greater than that on the credit side

Answer 35

a debit balance
(reverse is credit balance)

Question 36

What is the balance when debits = £70,000 and credits £6,000

Answer 36

a debit balance of £64,000

Question 37

What does a debit balance mean?

Answer 37

that the debit total is greater than the credit total in the T account

Question 38

How to balance the T account when you have a debit balance?

Answer 38

a balancing figure is added to the credit side to make them equal
called a balance figure carried forward (bal c/f)

Question 39

What is weight balance?

Answer 39

action of the T account, manually inserting some numbers into a T account to make sure that both sides of the T account equals

Question 40

What do you put on the opposite side of the Bal c/f?

Answer 40

the Bal b/f which is the same amount as the Balance c/f (it is also a balancing line)

Question 41

What is bal b/f

Answer 41

Balance bring forward

Question 42

What do balance b/f show?

Answer 42

true or real side of the account balance

Question 43

What are debit balances usually recorded for?

Answer 43

assets (eg machines), expenses (eg rent) and any drawings/dividends

Question 44

What are credit balances usually recorded for?

Answer 44

revenues, liabilities and capital/equity

Question 45

What does the closing balance become for the next period for debit balance?

Answer 45

the opening balance, with a debit balance being on the debit side for the start of the period (the balance b/f)

Question 46

How do we balance liabilities (eg bank loan and trade payables) and equity?

Answer 46

balance the T accounts with Bal c/f, then take these numbers (Bal c/f 3 figures) to a trial balance, they will go to the opposite side of the Bal c/f figure to the true balance side. Then also need to show them to the credit side

Question 47

What does the closing balance become for the next period for credit balance?

Answer 47

the opening balance, with a credit balance being on the creit side for the start of the period (the balance b/f)

Question 48

What do we do instead of balancing the revenue and expense accounts?

Answer 48

we close off these two accounts
(both in income statement), we dont carry or bring forward to the next period

Question 49

How to close off revenue and expense accounts (related to revenue)?

Answer 49

take the revenue out of the system for this period, for the next period the revenue figure will be zero

Question 50

What do we manually insert in the revenue and expense accounts when closing them off?

Answer 50

manually insert a value on the debit side called SOPL, instead of bringing forward we just put them into the income statement directly

Question 51

How do we close off revenue and expense accounts?

Answer 51

the balancing amount is transferred (moved put of T account) first to the trial balance (use the real side of balance, which is opposite to the Jan SOPL) to check that the balances are correct and then to the Statement of Profit or Loss

Question 52

What is a trial balance

Answer 52

a list of the balances in the ledger at the end of an accounting period, divided between those accounts with debit balances and those with credit balances

Question 53

What are the three columns in the trial balance

Answer 53

1st column - all the items of the accounts that we have balanced/ closed off (inventory, machines, trade receivables, cash payables, loans, share capital, revenue, cost of sales)

2nd column - debit balances
3rd column - credit balances

columns, left to right

Question 54

How do we fill out the trial balance table?

Answer 54

eg machine, £6000 Bal c/f on the credit side, when we transfer it to the trial balance we need to show the true side of this machines balance which is the debit side

so number from the bal c/f in the T accounts we need to put them to the opposite side which is the same side as the bal b/f

Question 55

How do we fill out the trial balance table for sales revenue and cost of sales (SOPL)?

Answer 55

the numbers from the SOPL in the T account, put it to the opposite side (which is the actual debit or credit balance)

Question 56

What do you do after filling in the trial balance?

Answer 56

add the debit and credit columns individually to get a total and they should be equal

Question 57

What is our starting point to prepare for the income statement/ balance sheet?

Answer 57

the trial balance

Question 58

What does every transaction in the ledger contain?

Answer 58

a matching debit and credit entry so the total of accounts in the rial balance with debit balances should equal the total with credit balances

Question 59

What is the trial balance a method of?

Answer 59

of internal control that provides a check on the arithmetic accuracy of the ledger and that the double entry has been correctly completed - so it helps spot errors

Question 60

What is the trial balance used to prepare for?

Answer 60

the final financial statements (income/ balance sheet)

Question 61

What is the full process of a trial balance?

Answer 61

1. transfer T accounts to the trial balance
2. list debit balances on the debit side of the trial balance and credit balances on the credit side of the trial balance
3. for the trial balance to balance, the debits must equal the credits
4. if the trial balance doesnt balance, check whether any accounts have been miscalulated