Book-Keeping Process and Double Entry

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Questions and Answers

What was the total amount spent on purchasing vehicles and furniture for the store?

$8,000

$7,000 (correct)

$5,000

$2,000

What is the total income from cash and credit sales?

$30,000

$20,000

$50,000

$40,000 (correct)

How much money was withdrawn from the bank for cash register use?

$12,500

$10,000 (correct)

$7,000

$5,000

What are the total expenses for salaries and electricity?

$6,000 Signup and view all the answers

What was the amount deposited from the cash register into the bank?

$12,500 Signup and view all the answers

What is the primary purpose of Books of Prime Entry in the accounting process?

To record transactions before posting to ledgers Signup and view all the answers

Which of the following best describes Source Documents?

Proof of a transaction that has occurred Signup and view all the answers

What information is generally included in a Source Document?

The transaction value, date, and details Signup and view all the answers

What does the accounting process NOT involve?

Removing entries from ledgers Signup and view all the answers

Which statement about Books of Prime Entry is NOT true?

They include complex financial reports. Signup and view all the answers

Which of the following accounts would typically be included in a Trial Balance?

Cash at bank Signup and view all the answers

How many Books of Prime Entry are mentioned in the context provided?

Six Signup and view all the answers

Which of the following is a critical step in the accounting process?

Collecting, recording, summarizing, and analyzing Signup and view all the answers

What is the primary purpose of the ledger in the book-keeping process?

To provide a summary of similar transactions for each account Signup and view all the answers

Which of the following statements best describes the double entry principle?

For every debit entry, there is an equal and opposite credit entry Signup and view all the answers

If an asset increases, how should it be recorded according to the double entry rule?

As a debit to an asset account Signup and view all the answers

In the context of the double entry system, a decrease in liabilities is recorded as which of the following?

Debit Signup and view all the answers

What is the first step in the three-step approach to recording transactions?

Identify the two elements of accounting impacted Signup and view all the answers

When Mr. X invests $50,000 of cash into his business, how should this transaction be recorded?

Debit Cash $50,000; Credit Capital $50,000 Signup and view all the answers

How would the purchase of land and buildings for $5,000 be recorded if it's an increasing asset?

Debit Land and Buildings $5,000; Credit Cash $5,000 Signup and view all the answers

Which of the following accounts would be credited when a business takes a bank loan?

Liability Account Signup and view all the answers

In which book of prime entry is the invoice received from a credit supplier recorded?

Purchases Journal Signup and view all the answers

What type of document is recorded in the Cash Book?

All documents for cash/bank transactions Signup and view all the answers

Which journal is used to record credit notes received from suppliers?

Purchases Returns Journal Signup and view all the answers

When goods are sold on credit, which document is generated that enters the sales ledger?

Sales invoice Signup and view all the answers

What does the Sales Returns Journal specifically record?

Credit notes issued for returned goods Signup and view all the answers

Which transaction will appear in the General Journal?

All general journal transactions Signup and view all the answers

Which of the following is the correct purpose of the Purchases Day Book?

To record purchases made by the business on credit Signup and view all the answers

What is noted in the Sales Journal?

Invoices sent to credit customers Signup and view all the answers

Study Notes

The Book-Keeping Process

The Book-keeping process involves recording financial transactions in a ledger.
A ledger is a book of accounts.
An account is a summary of similar financial transactions related to a specific accounting element.
The double entry principle is used to record financial transactions in relevant ledger accounts.
Each accounting element has its own separate account.
The format of a ledger account is often called a "T" account because of its shape.

The Double Entry Rule of Book-keeping

The double entry principle states that every financial transaction has two impacts, which are equal in value and opposite in nature.
These impacts are identified as a Debit (Dr) or a Credit (Cr).
Every accounting element has rules for debit and credit based on the double entry principle.

Rule Summary for Elements of Accounting:

Assets: Increase with a Debit (Dr) and decrease with a Credit (Cr).
Expenses: Increase with a Debit (Dr) and decrease with a Credit (Cr).
Liabilities: Increase with a Credit (Cr) and decrease with a Debit (Dr).
Incomes: Increase with a Credit (Cr) and decrease with a Debit (Dr).
Capital: Increase with a Credit (Cr) and decrease with a Debit (Dr)

Three-Step Approach to Double Entry Records

Step 1: Identify the two accounting elements impacted.
Step 2: Determine if each element is increasing or decreasing.
Step 3: Apply the double entry rules, recording the Debit (Dr) entry first followed by the Credit (Cr) entry. Then enter the transactions into the ledger accounts.

The Accounting Process

The accounting process involves collecting, recording, summarizing, and analyzing financial information.
Books of Prime Entry are used in the collecting phase.
These are the first place where transactions are recorded in the accounting process, before posting to ledger accounts.
Books of Prime Entry generally do not follow double entry principles, with the exception of the Cash Book.

Books of Prime Entry

Sales Journal: Records credit sales to customers.
Purchases Journal: Records credit purchases from suppliers.
Sales Returns Journal: Records goods returned by customers on credit.
Purchases Returns Journal: Records goods returned to suppliers on credit.
Cash Book: Records all cash and bank transactions.
General Journal: Records miscellaneous transactions that cannot be recorded in other journals.

Source Documents

Source documents are proof that a transaction occurred.
They are used as the basis for making entries in the Books of Prime Entry.
Every transaction should have a source document.

Source Document Examples:

Sales Journal: Invoice sent to a credit customer.
Purchases Journal: Invoice received from a credit supplier.
Sales Returns Journal: Credit note sent to a customer.
Purchases Returns Journal: Credit note received from a supplier.
Cash Book: All documents for cash and bank transactions.
General Journal: All documents for general journal transactions.

The Trial Balance

A Trial Balance is a list of all the ledger accounts and their balances.
It is used to summarize all the accounts to ensure that the total debits equal the total credits.
This confirms that the double entry principle has been applied correctly.

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Description

This quiz covers the essential concepts of the book-keeping process, including the use of ledgers and the double entry principle. You'll test your understanding of how financial transactions are recorded, the format of ledger accounts, and the rules for debits and credits across various accounting elements.