chapter four: ledger accounting and double entry

Blaise Ltd is a VAT registered business whose sales and purchases carry VAT at the standard rate of 20%. Blaise Ltd sells goods to a customer on credit for £4,800 exclusive of VAT.

What is the double entry to record this?

A Debit Sales £4,800, Debit VAT £960, Credit Receivables £5,760

B Debit Sales £4,000, Debit VAT £800, Credit Receivables £4,800

C Debit Receivables £5,760, Credit Sales £4,800, Credit VAT £960

D Debit Receivables £4,800, Credit Sales £4,000, Credit VAT £800

C Debit Receivables £5,760, Credit Sales £4,800, Credit VAT £960

What transaction is represented by the entries: Debit Rent, Credit Payables?

A The receipt of rental income by the business

B The issue of an invoice for rent to a tenant

C The receipt of an invoice for rent payable by the business

D The payment of rent by the business

C The receipt of an invoice for rent payable by the business

In double-entry bookkeeping, which of the following statements is true?

A Credit entries decrease liabilities and increase income

B Debit entries decrease income and increase assets

C Credit entries decrease expenses and increase assets

D Debit entries decrease expenses and increase assets

B Debit entries decrease income and increase assets

Crimson plc paid an invoice from a credit supplier and took advantage of the early settlement discount offered. When the invoice was received and recorded, Crimson plc did not expect to take the discount.

The journal entry to record the payment of the invoice is:

A Debit Payables, Credit Purchases, Credit Cash at bank account

B Debit Payables, Credit Cash at bank account

C Debit Cash at bank account, Debit Purchases, Credit Payables

D Debit Cash at bank account, Credit Purchases, Credit Payables

A Debit Payables, Credit Purchases, Credit Cash at bank account

Winn Ltd has opening trade payables of £24,183 and closing trade payables of £34,655. Purchases for the period totalled £254,192 of which £31,590 related to cash purchases.

Total payments recorded in the payables ledger for the period were:

A £212,130

B £233,074

C £243,720

D £264,664

A £212,130

A business raises an invoice to a credit customer who is not expected to take advantage of an early settlement discount. What is the double entry to record the invoice raised?

A Debit Revenue, Credit Receivables

B Debit Payables, Credit Revenue

C Debit Receivables, Credit Revenue

D Debit Revenue, Credit Payables

C Debit Receivables, Credit Revenue

Which of the following would require a debit entry in the payables account?

A Output VAT

B Cash purchases total

C Payments made to suppliers

D Early settlement discounts given to customers

C Payments made to suppliers

A payment has been received from a credit customer in settlement of an invoice. The customer was expected to take advantage of an early settlement discount offered however, payment was not made within the required time frame, and the discount was not taken.

The correct double entry to record the receipt of funds from the customer in full settlement of the

invoice is:

A Debit Cash at bank, Credit Receivables, Credit Revenue

B Debit Cash at bank, Debit Revenue, Credit Payables

C Debit Receivables, Debit Revenue, Credit Cash at bank

D Debit Receivables, Credit Revenue, Credit Cash at bank

A Debit Cash at bank, Credit Receivables, Credit Revenue

Output VAT

Output VAT is related to sales, not purchases, and therefore would be recorded in the receivables ledger.

Cash Purchases Total

Cash purchases total would not appear at all in the payables account.

Early settlement discounts given to customers

Early settlement discounts given to customers affect receivables, not payables.

Debits Increase:

• Expenses

• Assets

• Drawings

Drawings

Owner takes money out of business, like when a sole trader pays themselves, to when they take inventory.

Credits increase: 

• Liabilities 

• Income 

• Capital

Profit and Loss 

Income and Expenses 

Suppliers are classed as

trade payables - a liability

Customers are

trade receivables - an asset

Two types of discounts: 

Trade Discounts 

Early Settlement Discounts

Trade Discounts 

a reduction in the cost of goods, usually from bulk buying. 

Early Settlement Discounts

A reduction in the amount of payable in return for immediate or early payment in cash.

Initial Sales/Purchases are recorded Net of discount if it is expected to be taken.

Credit Sale £1000 - 5% discount offered for payment within 7 days. If customer is expected to take discount and acts as expected

Dr Receivables 950

Cr Sales Income 950

Credit Sale £1000 - 5% discount offered for payment within 7 days. If customer is expected to take discount, but doesn't

Dr Cash 1000

Cr Receivables 950

Cr Sales Income 50

Credit Sale £1000 - 5% discount offered for payment within 7 days. If customer is not expected to take discount and pays as expected

Dr Cash 1000

Cr Receivables 1000

Credit Sale £1000 - 5% discount offered for payment within 7 days. If customer is not expected to take discount and pays earlier than expected

Dr Cash 950

Dr Sales Income 50

Cr Receivables 1000

VAT Accounting - Manufacturer e.g. £10 and £2 VAT

Dr Trade Receivables £12

Cr Sales Income £10

Cr VAT Account £2

VAT Accounting - Retailer Trade Payables e.g. £12

Dr Purchase Expenses £10

Dr VAT Account £2

Cr Trade Payables £12

VAT Accounting - Retailer Trade Receivables e.g. £12

Dr Trade Receivables 12

Cr Sales income 10

Cr VAT 2