Financial Accounting and Reporting I - Principle of Double Entry

Flashcards covering the fundamentals of the double entry principle, types of ledger accounts, and rules for debiting and crediting as presented in Financial Accounting and Reporting I.

What does the double entry principle state?

For every debit entry, there must be a corresponding credit entry and vice versa.

What are the three pairs of concepts that help in understanding the double entry principle?

1. Debit (Incoming) / Credit (Outgoings); 2. Debit (Receiving/Receiver) / Credit (Giving/Giver); 3. Debit (Losses/Expenses) / Credit (Profit/Gains).

What is a ledger in accounting?

The principal book of accounts where the double entry principle is completed, containing permanent records of assets, liabilities, income, expenses, and equity.

On which side of a ledger account is the debit and credit side located?

The debit side is on the left, and the credit side is on the right.

What is the primary rule for Real Accounts?

Debit when there are additions (items acquired) and Credit when items are disposed of (sold, damaged, or given as gift).

Define Personal Accounts and the condition required for them to exist.

Accounts dealing with names of persons, corporate bodies, or partnerships; they are primarily opened when goods or services are purchased or sold on credit.

What are Nominal Accounts?

Accounts opened for income and expenses (gains and losses) such as rent, salaries, electricity, and discounts.

What information does the Sales Ledger (Trade Receivables Ledger) contain?

It contains all the personal accounts of customers, also known as trade receivables.

What is the purpose of a Private Ledger?

It contains sensitive details of capital accounts, drawings, loans, and investments, usually accessible only to senior managers.

What accounts are typically found in the General Ledger?

Nominal accounts (expenses, wages, rent, sales) and Real accounts (land, buildings, motor vehicles, inventories).

According to the general rules for recording in a ledger, what two things result in a debit?

1. An increase in an asset or an expense; 2. A decrease in revenue or a decrease in liability.

According to the general rules for recording in a ledger, what two things result in a credit?

1. A decrease in an asset or expense; 2. An increase in liabilities or income.

What is the difference between 'balance carried down' ($bal\,c/d$) and 'balance brought down' ($bal\,b/d$)?

$bal\,c/d$ is the figure used to make the lesser side agree with the higher side at the end of a period; $bal\,b/d$ is that closing balance becoming the opening balance for the next period.

What does a debit balance in a trade receivables account represent?

It represents an asset.

Under what condition is a cash/bank account credited instead of debited?

When it is a bank overdraft (a liability) rather than an asset.

How is the purchase of a motor car for $₦750,000$ cash recorded using double entry?

Debit the Motor car account with $₦750,000$ (receiving value) and credit the Cash account with $₦750,000$ (giving value).

In the Mensah Joe Enterprises example, what were the total debits in the opening journal on March 1, 2022?

The total debits were $₦876,000$, consisting of Motor Van ($₦480,000$) and Cash ($396,000$).

Why is 'Returns on sales' recorded as a debit entry?

Because it represents a decrease in sales revenue.

From where is the Trial Balance extracted at the end of an accounting period?

It is extracted from the ledger accounts.

What does the 'folio' column in a ledger account indicate?

The ledger page on which the corresponding debit or credit entry can be found.