Double Entry

Question 1

Is an increase in an asset a debit or a credit

Answer 1

Debit

Question 2

Is an decrease in an asset a debit or a credit

Answer 2

Credit

Question 3

Is an increase in an claim a debit or a credit

Answer 3

Credit

Question 4

Is an decrease in an claim a debit or a credit

Answer 4

Debit

Question 5

What is the journal

Answer 5

Journal records impact of events on assets and claims upon assets

Question 6

Formalities and method preparing the journal

Answer 6

When preparing the journal it is good practice to:
Write in any debits for a transaction first followed by the credits
Indent the credits
Journal entries (each entry and totals) always are equal for debits and credits

Question 7

What is a ledger

Answer 7

Ledger is a book of financial accounts
Consists of mini accounts known as T accounts, usually on separate pages of a ledger
By convention: DR is on the left and CR is on the right

Question 8

What is the method of calculating the T accounts - what do they contain and how do you calculate the balances

Answer 8

The opening balances of all accounts and the journal entries are recorded into the relevant ledgers and an end balance is taken.
The end balance is found by adding up each side and taking the smaller side away from the bigger side- The balance remains on the bigger side

Question 9

What type of t accounts can we have in the ledger

Answer 9

T accounts consist of assets, claims on assets, revenues and expense accounts or contra assets

Question 10

Why do we split accounts like retained earnings more epcifically

Answer 10

Disaggregated information is more valuable for decision-making
retained earnings figure doesn’t tell us about revenue vs expenditure or PPE figure doesn’t differentiate cost from depreciation

Question 11

How are the PPE and depreciation t accounts treated and why?

Answer 11

Equipment and accumulated depreciation make for separate T-accounts.
Someone reading the accounts always needs to see the cost of the equipment but these are combined in the trial balance
Accumulated depreciation is a contra asset account

Question 12

How is the retained earnings t account treated and why?

Answer 12

We show retained earnings transactions in separate T-accounts (ex: divs declared, depreciation expense, COGS, revenue, phone etc)
Retained earnings t-account will only be the opening balance

Question 13

How are dividends treated din t-accounts (in terms of declared and payable)

Answer 13

Dividends declared ledger is an expense account

Dividends payable is a liability account

Question 14

How does the trial balance work - how is it prepared by convention

Answer 14

By convention should list all the DR balances first followed by the Cr balances
The totals should balance

Question 15

How are equipment and depreciation figures presented in the trial balance

Answer 15

In trial balance, the figure for equipment incorporates depreciation t-account so the end balances are combined

Question 16

What financial statement do dividends go into?

Answer 16

Dividends go into the SORE not the income and expense account - that is only revenue - expenses separate from the owners

Question 17

Where does the retained earnings figure from the balance sheet come from?

Answer 17

For the balance sheet retained earnings figure this is worked out from the income statement and the statement of retained earnings. SORE: Beginning RE + net income - divs +Ending RE

Question 18

Describe the accounting process

Answer 18

Select - Analyse - Record - Report