Alfred Ajibola
- Fri, 03rd April, 2020 @ 09:40 AM
Topics in Accounts
Characteristics of Double Entry System Examples on the principle of double entry system Advantages and limitations of double entry system Scheme of work, Financial Accounting, SS1, Third Term Scheme of work, Financial Accounting, SS1, Second Term Scheme of work, Financial Accounting, SS1, First Term Differences between Bookkeeping and Accounting Journal explained with its contents, format, characteristics and advantages Bank Wire and Wire Transfer Chart of Accounts Balance Sheet ReconciliationsAcademic Questions in Accounts
According to the principles of the dual entry system, an increase in asset is credited.
A. True
B. False
The followings are true on the double entry system of accounting except _____.
A. Errors can't be made
B. It can be time consuming
C. It can be used as an accounting reference
D. It can be used to control a company's expenditure
E. There is completion of account transaction
F. It isn't difficult to implement
With regards to bookkeeping and accounting, which of the following statement is incorrect?
A. Accounting covers the entire practice of finance management
B. Bookkeeping is a branch of accounting
C. Bookkeeping is a necessary requirement when making financial statement of account
D. Bookkeepers record financial transaction in a chronological order
E. Accountant earn higher salaries than bookkeepers
F. Accounting reports assist business managers in making a more detailed decision
The debited and credited accounts are written in which column of a journal?
A. Date
B. Particulars
C. Folio
D. Ledger
E. Amount
F. None of the above
A journal may also be referred to any of the following except _____.
A. Book of original entry
B. Book of primary entry
C. Book of first entry
D. Initial book
E. Day book
F. Chronological book
Which of the following statement is true concerning bank wire?
A. Another name for bank wire is cash transfer
B. The term 'wire' in bank wire signifies a computer based programmed message sent to a bank customer in regards to their account information, transaction and other important financial notifications
C. The International Bank Account Number (IBAN) must always be involved when carrying out a bank wire process
D. The term bank wire has no significant relationship with wire transfer
E. Cyber criminals cannot utilize bank wire threats like CSRS, phishing and whaling to achieve their fradulent act
F. All the above statements are true
The following are recommendations to follow during the process of balance sheet reconciliation EXCEPT _____.
A. All balance sheet accounts should be reconciled periodically, quarterly or annually
B. Comparing the trial balance of both the payables and receivables with the respective aging schedule
C. Analysis of enteries and relocating them to a sub-ledger if need be
D. Comparing the general ledger trial balance of the account to another source; for instance, a bank statement
E. Analysis of the differences in both accounts and making appropriate correction to ensure the correctness of entered information
F. None of the above
Every accounting system is based on the principle of double entry. Before we further on the examples that reflects this principle, it will be a great idea if we comprehend the concept on the principle of double entry. Below is a brief introduction:
Double entry system of accounting may simply be defined as the process of keeping an account with a balanced (or an equal) debit (Dr) and credit (Cr) side. This is shown in the image below:
Please read an introduction to the principle of double entry here.
An understanding on both sides (debit and credit) of the double entry is crucial. At the moment, think of the debit side as a recording point for 'one that receives' while the credit side accounts for 'one that gives out'.
Just before we look into the examples of the double entry system, a transactional knowledge of what is recorded in the debit and credit sides of the account book is very important. The link below will prove useful.
Please read more on the debit and credit sides of a double entry system here.
The instances below will be used to explain the double entry system:
1. Purchase of phone
When a buyer purchases a phone, he or she automatically has a new asset; and that's the phone. An increase in asset is recorded on the debit side of the entry.
Conversely, the buyer pays out some sum of money to purchase the new phone. The money payed out represents a decrease in asset (according to the buyer) and it is recorded on the credit side of the dual entry system.
You can read on scale of preference and opportunity cost here.
If this buyer were to record both entries into an accounting system, the newly owned phone will be recorded on the debit side while reflecting the money payed out on the the credit side.
Debit: New phone owned -> Increase in asset
Credit: Money paid out -> Decrease in asset
You can read on balance sheet reconciliation here.
2. Obtaining bank loan
When an individual receives a loan from a bank, such will reflect as an increase in the person's asset. This is true because the money can be utilized (or invested) for its intended purpose(s). Recall that an increase in asset is recorded on the debit side of the dual or double accounting system.
Please read on the concept and types of cost here.
Conversely, the individual who received the loan will have to repay it alongside some interest. The interest paid is considered an increase in liability, thus is recorded on the credit side of the dual accounting system.
Debit: Cash received -> Increase in asset
Credit: Money received + Interest -> Increase in liability
You can read on cheque as a method of payment here.
3. Payment of school fees
A part-time student who does other jobs to pay his or her school fees will consider the paid fee (money) an expense. This is true because the student will need to save or budget some money for this purpose.
Conversely, the training and lectures received by the student will be considered an increase in equity. Equity in this instance (of education) implies that the student enjoys necessary support needed to become successful in his or her chosen field of study.
You can attempt Len Academy questions on various subjects here.
If the student decided to record this inventory in a financial book, the payment of school fees will be recorded on the debit side (because it represents an increase in expense) while the lectures received, on the credit side (since it's an increase in equity).
Debit: School fees -> Increase in expense
Credit: Lectures received -> Increase in equity
You can read on the advantages and limitations of the double entry system here.
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Amazing facts in Accounts
It is believed that bookkeeping is the only English word to contain three sets of double letters repeatedly
Notable points in Accounts
Below are the limitations or disadvantages of double entry system of accounting:
Increased usage (and cost) of books of accounts.
The accounting process can become complex.
Mistakes are possible.
Recruitment and payment of a professional may be required.
It can be time consuming.
Double entry system of accounting is defined as one that shows recorded transactions at both sides (Debit - Dr.) and (credit - Cr.) of the entries with both having equal values.
Double entry system is also termed as Dual system of accounting.
Bookkeeping can be defined as all the activities that have to do with the orderly classification and recording of financial data or business transaction.
Bookkeeping assist the process of accounting via the taking of an accurate record keeping.
Accountingis a field of study that covers the entire process and practice of managing the finances of an individual or an organization.
In smaller organizations, a bookkeeper’s job may go beyond simple transaction recording, as they may also be involved in the accounting process of the organization. On the other hand, accountants may have to record financial transaction in addition to analyzing financial transaction.
Please read more on bookkeeping and accounting alongside their differences here
Below are the importance of bookkeeping in any organization:
It brings accuracy into the recordings of the daily business transaction.
They provide the information on which financial accounts are prepared.
Aside from its importance in business organizations, it can also be used by nonprofit organizations and individuals.
It can also take record of liabilities, assets and loans. This function of bookkeeping can be crucial for many businesses.
A journal, also called book of original entry or book of primary entry or book of first entry or day book or chronological book is a book where daily transactions are recorded in a chronological order (the order of occurrence).
A journal contains the total record of all transactions made by a company. It can be distinguished into different types which will include:
Sales Journal: For recording inventory and sales.
Cash Receipts Journal: For recording money received from sales or cash inventory.
Purchase Journal: For recording all purchases made by a company.
General Journal and so on.
The content of a journal include the followings:
The date when the transaction occurred.
The description of the transaction.
Debits
Credits
Accounts affected
