Chapter One

Question 1

What is the double entry bookkeeping based upon?

Answer 1

The dual effect principle
The separate entity principle
The accounting equation

Question 2

What is the dual effect principle?

Answer 2

Each and every transaction that has a business makes two effects

Question 3

Example of the dual effect principle

Answer 3

If a business buys good for cash and the two effects are the cash has decreased and the business is now made a purchase. Each of these effects must be shown in the ledger account by Deborah entry and one and an equal credit in another.

Question 4

Define the separate entity concept

Answer 4

The business is a completely separate accounting entity from the owner

Question 5

Example of the separate entity concept

Answer 5

If the owner pays personal money into the business account, this becomes the capital of the business which is owed back to the owner

Question 6

What happens when the owner takes money out of the business in the form of drawings?

Answer 6

The name of capital owed to the owner is reduced

Question 7

What is the accounting equation?

Answer 7

Assets - liabilities = capital

Question 8

What is an asset?

Answer 8

Every source would value that its own or controlled with an expectation that it will provide a future benefit

Question 9

Define non current asset

Answer 9

Assets that will be used within the business over long period. Usually more than a year.

Question 10

Define current assets

Answer 10

Current assets are those used in a period less than one year

Question 11

Define liability

Answer 11

An obligation to something value as a result of past transactions or events… e.g. I anger balance to credit supplier is liability

Question 12

Define current liabilities

Answer 12

Short term pays of a business this means payable is due to be paid in 12 months the statement of financial position date

Question 13

A non-current liabilities

Answer 13

Papers that we paid over a longer period over a year of the financial position date e.g. loan

Question 14

Define equity

Answer 14

Shows what is left of the business when all assets are sold and the outstanding liabilities of paid.. basically what goes back to the owners when the business ceases to trade

Question 15

What are the steps of recording transactions in an accounting system?

Answer 15

Business transaction, business document, books of prime entry , ledger account, trial balance

Question 16

Where will the transactions and details from the business document be entered into?

Answer 16

The book of prime entry, these can also be referred to as day books

Question 17

Where do the transactions that were recorded in the book of prime entry get transferred to?

Answer 17

Into the ledger account as part of the general ledger on a regular basis… Ledger accounts are used as part of the double entry accounting system

Question 18

What is an initial trial balance?

Answer 18

A list of all the ledger accounts in the accounting system

Question 19

What is the trial balance used as?

Answer 19

Air control to check the transactions have been recorded correctly in the double entry system prior to the preparation of the financial statements

Question 20

How many different books are primary are there?

Answer 20

Nine

Question 21

What are the list of books of prime entry

Answer 21

Sales day book, purchases return book, discount allowed a book, purchase a book, cash book, discount receive day book, sales return day book, petty cash book, journal

Question 22

What is the general ledger?

Answer 22

The general ledger contains all the ledger accounts for according transactions occurring with an entity

Question 23

What is the memorandum/subsidiary ledger?

Answer 23

Provides details behind the entities in the general ledger. Memorandum ledgers are maintained individual recievables and payables.

Question 24

Define the receivables ledger

Answer 24

This may also be referred to the sales ledger is a set of accounts for individual receivables

Question 25

What is the payable ledger?

Answer 25

This subsidiary payable ledger may also be referred to as purchase ledger… Is a set of accounts for individual papers

Question 26

When money is paid out of a business, what entry is this?

Answer 26

The credit entry in the cash or bank account

Question 27

When money is received by a business, what entry is this?

Answer 27

This is a debit entry in the cash or bank account

Question 28

What does debit show in a cash bank account?

Answer 28

Money in

Question 29

What does credit show in cash bank account?

Answer 29

Money out

Question 30

What is the jewel effect for purchasing on credit?

Answer 30

Increases in purchases increases in payables ( PLCA… a debt entered to the purchase account as it’s an expense and then a credit to the payable account as it’s a liability

Question 31

What is the jewel effect paying cash to the supplier?

Answer 31

Decreasing cash, decrease in payables A credit entry to the bank account as money is paid out in a different entry to the payables as liability is reduced

Question 32

What happens when the entrance have been made in the ledger accounts for a period?

Answer 32

The balance of each ledger account will be extracted in a trial balance will be prepared

Question 33

Where did the trial balance appear?

Answer 33

As a list of debit balances and credit balances depending upon the type of account

Question 34

In a computerised system and what will the order of the trial balance be based on?

Answer 34

The account code assigned to each ledger account

Question 35

What is a trial balance?

Answer 35

Play all of the ledger account balances in the general ledger

Question 36

Before we can prepare the initial trial balance, what do we need to balance?

Answer 36

Each ledger account first

Question 37

What do we often need to account for after the trial balance Has been extracted

Answer 37

Foot adjustment e.g. for admissions errors or period and journals

Question 38

Where do adjustments get recorded?

Answer 38

In the general ledger accounts using adjustment journals

Question 39

What happens after the adjustment journal to imposted?

Answer 39

We can instead adjust the initial tryout rather than extracting another trial balance

Question 40

What needs to happen before the financial statements can be prepared at the accounting period end?

Answer 40

Ledger accounts need to be balanced off

Question 41

How do you balance off asset liability and capital account?

Answer 41

The balance on the account is carried down and brought down to give the opening balance for the next accounting period

Question 42

How do you balance of income or expense account?

Answer 42

The balance is transferred to a statement of profit or loss ledger account leaving a nil balance in the income or expense account

Question 43

How do you prepare the statement of profit or loss?

Answer 43

All the income and expense account balances are transferred to a new ledger account in the general ledger called the pro and lost ledger account

Question 44

Where is the information summarise in the profit and loss ledger account transferred to?

Answer 44

The vertical statement of profit or loss format

Question 45

What are the two principle financial statements?

Answer 45

The profit or loss statement and the statement of financial position

Question 46

What does the statement of profit and loss summarise?

Answer 46

The transactions of business over an accounting period and determine whether the business has made a profit or loss for that period

Question 47

What is the statement of financial position?

Answer 47

The statement of financial position is a summary of all the assets and liabilities of the business on the last day of the accounting period

Question 48

How many sections is the statement of financial position split into?

Answer 48

Two

Question 49

What is the top of the statement of financial position?

Answer 49

The top is a list of all the assets and liabilities then this is totalled by adding together or the asset value using deducting the liabilities

Question 50

What is the bottom part of the statement of financial position?

Answer 50

Have the businesses funded for a soul trader this is made up of capital at the start of the year plus the net profit for the year less drawings that has taken during the business. This is also total and it should have the same total as the top part of the statement of financial position.

Question 51

What are the benefits of using digital bookkeeping systems

Answer 51

Simple date entry and efficient, automatic generation of report, automation of tasks, reduction of errors, integration with other systems

Question 52

Define recurring entries

Answer 52

A recurring entries is the journal entry that is recorded in every accounting period

Question 53

What is the negatives of using digital bookkeeping systems?

Answer 53

Cost, implementation and support, potential errors, specialise needs