double entry accounting (topic 3)

Question 1

extended accounting equation

Answer 1

Assets + Drawings + Expenses = Liabilities + Capital + Income

Question 2

debit

Answer 2

• LHS
• abbreviation Dr

Question 3

credit

Answer 3

• RHS
• abbreviation Cr

Question 4

assets, drawings, expenses
debit & credit rules

Answer 4

• increases entered on the debit (LEFT) side
• decreases entered on the credit (RIGHT) side

Question 5

liabilities, capital, income
debit & credit rules

Answer 5

• increases entered on the credit (RIGHT) side
• decreases entered on the debit (LEFT) side

Question 6

paid always means

Answer 6

money has gone out of the business

Question 7

received (eg received $800) always means

Answer 7

money has come into the business

Question 8

Cash accounting

Answer 8

• a very basic approach that records incomes and expenses at the time the cash is received or paid.
• simple way to record data, but problems arise when the cash flow occurs in a different time period to when the original transaction occurred. (prepayments and accruals).

Question 9

accrual accounting

Answer 9

• Records incomes and expenses when the underlying transaction occurs, regardless of whether cash has changed hands or not.
• This means income is recognised when earned, regardless of whether cash had already been received or is yet to be received.
• Expenses are recognised when they are incurred, regardless of whether cash has been paid already, or is still owing.