Double Entry Book-Keeping with Ledger Accounts (Cambridge (CIE) IGCSE Accounting): Flashcards

A debit entry increases an asset, or decreases a liability or the capital. In terms of the accounting equation, it increases the left-hand side or decreases the right-hand side.

The completed sentence is:

A credit entry increases a liability or the capital, or decreases an asset.

An expense reduces the profit, and reducing the profit reduces the capital. A debit is what records a fall in capital, which is why every expense account is debited.

Income increases the profit, and increasing the profit increases the capital. A credit is what records a rise in capital, which is why sales, rent received and discount received are all credited.

The completed sentence is:

When a business pays a credit supplier, the trade payables account is debited and the bank account is credited.

Debit the customer's trade receivables account, because they now owe more and that is an asset increasing. Credit the sales account, because sales increase profit and so increase capital.

Debit the drawings account, because taking drawings reduces the capital. Credit the vehicles account, because the business now owns fewer vehicles and that is an asset decreasing.

Double entry records:

• make it straightforward to prepare the financial statements

• give an accurate figure for the profit or loss

• reduce the possibility of fraud

• give a bank or other lender easy access to the information they need

Debit the cash or bank account, because the business is receiving money and that asset is increasing. Credit the sales account, because sales increase profit and so increase capital.

False.

No entry is made in any trade receivables account for a cash sale. The customer paid straight away, so they never owed the business anything.

The completed sentence is:

For a credit sale, the business document is the sales invoice and the book of prime entry is the sales journal.

Discount allowed is a cash discount the business gives to a credit customer for paying early. It is not a trade discount, and it reduces the business's profit.

Debit the bank account, because the business is receiving money and that asset is increasing. Credit the customer's trade receivable's account, because they now owe less and that asset is decreasing.

Debit the discount allowed account, because the discount reduces profit and so reduces capital. Credit the customer's trade receivable's account, because they now owe the business less.

The discount is 10% × $400 = $40, so the customer pays $360. Debit bank $360 and discount allowed $40, and credit the customer's account with the full $400.

Debit the sales returns account, because the return reduces profit and so reduces capital. Credit the customer's trade receivable's account, because they now owe the business less.

Their trade receivable's account now has a credit balance, which means the business owes the customer money. It is cleared when the business gives them a cash refund.

The completed sentence is:

For a cash purchase, the purchases account is debited and the cash or bank account is credited.

The goods were paid for straight away, so the business never owed the supplier anything. A trade payables account records only amounts still outstanding.

Discount received is a cash discount a credit supplier gives the business for paying early. It is not a trade discount, and it increases the business's profit.

Debit the purchases account, because purchases reduce profit and so reduce capital. Credit the supplier's trade payable's account, because the business now owes more and that liability is increasing.

A payment to a credit supplier is recorded in the cash book. The documents used are the bank statement, the cheque counterfoil or a receipt, depending on how the payment was made.

False.

The credit goes to a separate purchases returns account, not to the purchases account itself. Keeping them apart lets the business see the total value of goods it has sent back.

Debit the supplier's trade payable's account, because the business now owes less and that liability is decreasing. Credit the discount received account, because the discount increases profit and so increases capital.

The discount received is $200 − $175 = $25. Debit the supplier's account with the full $200, then credit bank $175 and discount received $25.

Debit the supplier's trade payable's account, because the business now owes less and that liability is decreasing. Credit the purchases returns account, because the return increases profit and so increases capital.

The trade payable's account now has a debit balance, which means the supplier owes the business money. It is cleared when the business receives a cash refund.

A dishonoured cheque is a cheque the bank has returned unpaid. It usually means the payer did not have the funds to cover it, or that there was an error on the cheque such as a missing signature.

You make exactly the same entries as when the cheque was first recorded, but on the opposite sides of the accounts. That reverses the original transaction and puts the debt back where it was.

False.

The money was never received in the first place, so nothing has been lost. The entries simply undo a payment that turned out not to have happened, and the customer still owes the full amount.

Debit the customer's trade receivables account, putting the debt back onto their balance. Credit the bank account, because the money was never actually received.

The completed sentence is:

When the business's own cheque is dishonoured, any discount received is reversed by debiting the discount received account.

Debit the bank account, because the money never actually left the business. Credit the supplier's trade payables account, putting the debt back onto what the business owes them.

The discount allowed is reversed as well, by crediting the discount allowed account. The customer's account is debited with the full original amount, cheque and discount together, because they no longer qualify for either.

The full $500 goes back onto their account, as two entries: $450 against the bank and $50 against discount allowed. They owe the whole original amount again, because the discount depended on the cheque clearing.

A refund is given when the customer's account has a credit balance, meaning the business owes them money. That happens if they overpaid, or returned goods after paying for them.

True.

A refund moves money, so it belongs in the cash book like any other payment or receipt. The returns journals record the goods coming back, which is a separate event.

Debit the customer's trade receivable's account, clearing what the business owed them. Credit the bank account, because the business is paying money out.

The completed sentence is:

A refund is recorded from the bank statement or from the cheque counterfoil.

A refund is received when the supplier's account has a debit balance, meaning they owe the business money. That happens if the business overpaid, or returned goods after paying for them.

Debit the bank account, because the business is receiving money. Credit the supplier's trade payable's account, clearing what they owed the business.

A credit note reduces the balance on the customer's account, so no money changes hands. A refund pays actual money out, and is only needed once the account is already in the customer's favour.

Debit the machinery account, because that asset is increasing. Credit the bank account, because that asset is decreasing.

False.

The purchases account is only for goods bought for resale. A van is a non-current asset and is recorded in its own vehicles account.

Debit the bank account, because the business now has more money and that asset is increasing. Credit the loan account, because the business owes more and that liability is increasing.

The completed sentence is:

The expense account is called rent payable and the income account is called rent receivable.

Interest is an expense, so debit a separate loan interest account and credit the bank. Nothing is entered in the loan account, because the amount borrowed has not changed.

Drawings are assets the owner takes out of the business for personal use, whether money, goods or a non-current asset. Taking drawings reduces the capital.

Debit the cash or bank account, because that asset is increasing. Credit the rent receivable account, because income increases profit and so increases capital.

The purchases account is credited, because that is where the goods were recorded when they were bought. Drawings is debited, as it always is: only the credit changes, being cash, bank, purchases or a non-current asset depending on what was taken.

Debit the bank account, because that asset is increasing. Credit the capital account, because the owner's claim on the business has grown.

Its sale or disposal, credited at the original cost of the asset. Any profit or loss on the sale goes to a separate disposal account, and depreciation is recorded in a separate account as well.

The columns are date, details, debit, credit and balance. The format is used by bank statements and accounting software, as an alternative to the two-sided ledger account.

True.

The rules for which column an amount goes in are exactly the same. Only the layout differs, with the balance shown after every entry instead of being worked out at the end of the period.

Add the entry to the balance when both are on the same side, either both debits or both credits. Subtract it when they are on opposite sides, and if the answer comes out negative the balance switches between debit and credit.

The completed sentence is:

Where a balance can switch sides, such as a bank account, the words debit and credit are written after each balance.

The advantage is that the business can always see the current balance, updated after every entry. The disadvantage is that it does not show the total debits and total credits separately.

The new balance is $325 debit. The receipt is a debit and the balance was a credit, so they are subtracted: $150 − $475 = −$325, and the negative result means the balance has switched to a debit.

Balancing keeps the accounts accurate and shows the current balance of each one. It is normally done at the end of each month, so that managers can monitor progress.

The completed sentence is:

The balance c/d is entered on the side with the smaller total, so that the two totals come out equal.

Total both sides of the account separately, the debits and the credits. Everything else follows from the difference between those two totals.

c/d stands for carried down, and b/d stands for brought down. The balance c/d closes the account for one period and the balance b/d opens it for the next.

The balance c/d is only a balancing figure, inserted to make the two totals agree. The real balance is the other way round, so it is brought down on the opposite side to start the next period.

True.

They are the same figure written twice, on opposite sides and in different periods. The c/d entry closes the account for the period, and the b/d entry reopens it carrying that balance forward.

The balance c/d is $1200, entered on the debit side. The difference is $3000 − $1800 = $1200, and it goes on the debit side because that side has the smaller total.

Only the expense and income balances, which includes sales, purchases, sales returns and purchases returns. Balances on asset, liability and capital accounts are not transferred, because they do not affect the profit.

The completed sentence is:

Expenses are debited to the statement of profit or loss, and incomes are credited to it.

The balance is not carried down to the next period, but goes to the statement of profit or loss instead. The account then starts the new period with a zero balance.

True.

It is a ledger account like any other, which is why balances are transferred into it with debit and credit entries. The profit therefore falls out of the double entry itself rather than being worked out separately.

To the capital account, as a credit entry, because a profit increases the owner's claim on the business. A loss is debited to the capital account instead.

Debit the statement of profit or loss and credit the inventory account. The opening inventory is an expense of the current year, and the asset is decreasing.

Debit the inventory account and credit the statement of profit or loss. The closing inventory is not an expense of this year, and it becomes next year's opening inventory.

It is transferred to the capital account as a debit entry, because drawings reduce the owner's capital. The capital account is then balanced to give the closing capital.

The closing capital is $105 000. The profit is added and the drawings subtracted: $80 000 + $40 000 − $15 000 = $105 000.

An asset account has a debit balance and a liability account has a credit balance. That follows straight from the debit and credit rules, so it never has to be memorised separately.

The completed sentence is:

An expense account usually has a debit balance, but it can sit on the other side if the business is in arrears.

A trade receivable's account is debited when:

• the customer buys more goods on credit

• interest is charged on an overdue balance

• a cheque received from them is dishonoured

• the business refunds them for goods already paid for

False.

Sales returns has a debit balance and purchases returns has a credit balance. Each sits on the opposite side to the account it reduces, so sales returns opposes the credit-balance sales account.

A trade receivable's account is credited when:

• the customer pays an invoice

• cash discount is allowed to them

• they return some of the goods

A trade payable's account is credited when:

• the business buys more goods on credit

• interest is charged on an overdue balance

• a cheque sent to them is dishonoured

• the supplier refunds the business for goods already paid for

Always-debit balances include:

• non-current assets, cash and inventory

• purchases and sales returns

• drawings

Always-credit balances include:

• loan accounts

• sales and purchases returns

• capital

The bank account. A debit balance means there is money in the bank, while a credit balance means the account is overdrawn.

It is debited by a loss, and by the transfer of the drawings balance at the year end. It is credited by a profit, and whenever the owner introduces money or an asset into the business.

It only changes at the year end, when the opening inventory is transferred out and the closing inventory brought in. Day-to-day buying and selling go through the purchases and sales accounts instead.