A-level Accounting Exam

side and the other account will have this transaction recorded on the credit side.The amounts which are recorded on both accounts must be corresponding. This is to ensure the fundamental principles set out in the accounting equation are followed in order to ensure total assets are always equal to total capital and liabilities. What is a cash transaction? - answer-This transaction means that the goods are paid for at the time of purchase or sale, either in cash or by cheque. What is a credit transaction? - answer-This transaction means that the goods will be paid for at a later date, leading to trade receivables when customers pay later and trade payables when the business pays its suppliers later. Purchases - answer-The purchase of goods from suppliers for resale to customers. Debit as goods come in Sales - answer-The sale of goods to customers Credit as goods go out Sales returns - answer-Goods returned to the business by customers. Debit as goods come in Purchases returns - answer-Goods returned to suppliers by the business Credit as good go out Drawings - answer-When the owner takes money or other assets out of the business for their own personal use. Trial Balance - answer-A trial balance is a list of all the balances in all of the accounts.It is prepared at regular intervals to check the arithmetical accuracy of the accounts. If a Dr entry is made for every Cr entry Total Drs will = total Crs In theory this means that the accounts have been correctly completed. What are the reasons for balancing off accounts? - answer-There are 2 accounts which are impacted for every type of transaction. Recording these transactions could either increase the total sum of entries on a given account or decrease it. Therefore at the end of every certain period we must identify what the total balance on a given account is after having recorded all these individual transactions. This closing balance / bal cd will be included in the lower side making the total to both sides equal. This will then be brought down/ bal bd back to the higher side at the start of the new period. Explain the usefulness of the trial balance - answer-- checks to ensure double entry procedure is followed - arithmetic accuracy - both the debit and credit sides are totalled - both sides must agree - if it does not agree mistakes can be identified/corrected - although some errors may not be identified in the trial balance Income statement - answer-The income statement calculates the profit ( loss ) for the year. This being revenue minus expenditure. It first calculates gross profit in the trading section which is then adjusted for additional income and overhead expenses. Statement of Financial Position - answer-A statement which shows the financial position of the business and includes assets, capital drawings and liabilities and shows how much the business is worth. Carriage inwards - answer-The charge suppliers make for delivering goods. The delivery charge on purchases and is added to purchases when calculating cost and gross profit. Carriage outwards - answer-The cost of delivering goods to customers it is a distribution cost and a cost of sale Revenue items - answer-Revenue items arise from the everyday trading activities of the business and occur on a regular basis. .e.g. repairs rent ( both paid and received ) Revenue items are entered into the income statement Capital items - answer-Capital items are medium to long term namely spending on the acquisition and improvement of assets and receipts from the sale of assets Capital items are entered into the shop What is the purpose of an income statement? - answer-Income statement is a historical / backward looking financial document which shows how much profit or loss a business has made over the last 12 months. Revenue receipts - answer-Income from the normal trading activities of the business. .e.g. sales commission receivable rent receivable