Essential Book Keeping - Qp2

1. The whole of accounting and bookkeeping is underpinned by a set of concepts and ideas.

True

False

The statement is true because accounting and bookkeeping are based on a set of concepts and ideas that provide a framework for recording, organizing, and reporting financial transactions. These concepts and ideas, such as the accrual principle, consistency, and materiality, ensure that financial information is accurate, reliable, and comparable. Without these underlying principles, accounting and bookkeeping would lack consistency and standardization, making it difficult to interpret and analyze financial data.

Explanation

The statement is true because accounting and bookkeeping are based on a set of concepts and ideas that provide a framework for recording, organizing, and reporting financial transactions. These concepts and ideas, such as the accrual principle, consistency, and materiality, ensure that financial information is accurate, reliable, and comparable. Without these underlying principles, accounting and bookkeeping would lack consistency and standardization, making it difficult to interpret and analyze financial data.

2. The system that forms the basis of most accounting procedures is called single entry bookkeeping.

True

False

The statement is false because the system that forms the basis of most accounting procedures is actually called double entry bookkeeping. In double entry bookkeeping, every transaction is recorded in at least two accounts, ensuring that the accounting equation (assets = liabilities + equity) is always balanced. Single entry bookkeeping, on the other hand, only records transactions in a single account, making it less accurate and reliable compared to double entry bookkeeping.

Explanation

The statement is false because the system that forms the basis of most accounting procedures is actually called double entry bookkeeping. In double entry bookkeeping, every transaction is recorded in at least two accounts, ensuring that the accounting equation (assets = liabilities + equity) is always balanced. Single entry bookkeeping, on the other hand, only records transactions in a single account, making it less accurate and reliable compared to double entry bookkeeping.

3. Match the following statements:

It is most simply thought of as resulting from a transaction that brings a benefit into the business, such as an increase in stock or cash going into the bank.

It is the transaction resulting from assets leaving the business, or new liabilities being incurred or increased.

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4. All items in the accounts must be recorded at the actual value they took place at, that is to say the ______ cost.

Future

Present

Historical

In accounting, the principle of recording transactions at their historical cost means that items should be recorded based on the actual value they took place at, rather than their current or future values. This ensures that the financial statements provide an accurate representation of the company's financial position and performance at the time the transactions occurred. By recording transactions at their historical cost, the company avoids potential distortions in the financial statements that could arise from fluctuations in market values.

Explanation

In accounting, the principle of recording transactions at their historical cost means that items should be recorded based on the actual value they took place at, rather than their current or future values. This ensures that the financial statements provide an accurate representation of the company's financial position and performance at the time the transactions occurred. By recording transactions at their historical cost, the company avoids potential distortions in the financial statements that could arise from fluctuations in market values.

5. In a traditional set of double entry bookkeeping accounts there are a number of rules that are used to ensure conformity across accounts which includes: (Select five)

Debit entries are recorded on the left hand side of the page

Credit entries are recorded on the right hand side of the page

No more than one account on a single page

The name of the account should be written on the bottom of the page

A folio column is usually used to cross reference to the other side of the double entry

In traditional double entry bookkeeping, debit entries are recorded on the left-hand side of the page and credit entries are recorded on the right-hand side of the page. This ensures consistency and clarity in recording financial transactions. Additionally, only one account is recorded on a single page to avoid confusion. The page is split up to include the necessary details such as the date, description, reference, and amount for each transaction. A folio column is also typically used to cross-reference the corresponding entry on the other side of the double entry.

Explanation

In traditional double entry bookkeeping, debit entries are recorded on the left-hand side of the page and credit entries are recorded on the right-hand side of the page. This ensures consistency and clarity in recording financial transactions. Additionally, only one account is recorded on a single page to avoid confusion. The page is split up to include the necessary details such as the date, description, reference, and amount for each transaction. A folio column is also typically used to cross-reference the corresponding entry on the other side of the double entry.

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6. There are a few rules concerning the way in which entries are made into the books: (Select four)

A new page is created for each account.

Each page is divided into three parts.

Each entry comprises the date, amount and a short description.

Accounts are broken down into three categories.

The explanation for the given correct answer is that according to the rules mentioned, a new page is created for each account, ensuring that each account has its own dedicated space for recording transactions. Additionally, the rule states that every time an entry is made on the credit side of one account, an equal amount must be entered on the debit side of another account, ensuring that the books remain balanced. Each entry also includes the date, amount, and a short description, providing a clear record of the transaction. Lastly, the accounts are categorized into three categories, which helps organize and classify the information for easier analysis and reporting.

Explanation

The explanation for the given correct answer is that according to the rules mentioned, a new page is created for each account, ensuring that each account has its own dedicated space for recording transactions. Additionally, the rule states that every time an entry is made on the credit side of one account, an equal amount must be entered on the debit side of another account, ensuring that the books remain balanced. Each entry also includes the date, amount, and a short description, providing a clear record of the transaction. Lastly, the accounts are categorized into three categories, which helps organize and classify the information for easier analysis and reporting.

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7. To decrease the value in an asset account, enter the value on the debit (or left hand) side.

True

False

In accounting, the debit side is used to increase the value in an asset account, not decrease it. The debit side is typically associated with assets and expenses, while the credit side is associated with liabilities, equity, and revenue. Therefore, to decrease the value in an asset account, you would enter the value on the credit (or right hand) side.

Explanation

In accounting, the debit side is used to increase the value in an asset account, not decrease it. The debit side is typically associated with assets and expenses, while the credit side is associated with liabilities, equity, and revenue. Therefore, to decrease the value in an asset account, you would enter the value on the credit (or right hand) side.

8. To decrease the value in a liability account, enter the value on the debit side.

True

False

To decrease the value in a liability account, entering the value on the debit side is correct because liabilities have a normal credit balance. By entering a value on the debit side, it reduces the balance of the liability account, thus decreasing the value. This follows the basic principles of double-entry accounting, where debits are used to decrease liability accounts.

Explanation

To decrease the value in a liability account, entering the value on the debit side is correct because liabilities have a normal credit balance. By entering a value on the debit side, it reduces the balance of the liability account, thus decreasing the value. This follows the basic principles of double-entry accounting, where debits are used to decrease liability accounts.

9. Injections of capital are debits to the capital account.

True

False

Injections of capital are actually credits to the capital account. When capital is injected into a business, it increases the value of the capital account, which is a positive entry. Therefore, injections of capital are not debits but rather credits to the capital account.

Explanation

Injections of capital are actually credits to the capital account. When capital is injected into a business, it increases the value of the capital account, which is a positive entry. Therefore, injections of capital are not debits but rather credits to the capital account.

10. The money measurement principle dictates that every transaction has two sides to it.

True

False

The money measurement principle states that only those transactions that can be expressed in monetary terms should be recorded in the financial statements. It does not dictate that every transaction has two sides to it. Some transactions may have multiple sides, while others may have only one side. Therefore, the given statement is false.

Explanation

The money measurement principle states that only those transactions that can be expressed in monetary terms should be recorded in the financial statements. It does not dictate that every transaction has two sides to it. Some transactions may have multiple sides, while others may have only one side. Therefore, the given statement is false.

11. Basic concepts is the belief that only transactions that relate to business activities should be processed within the business accounts.

True

False

The statement is false because basic concepts do not state that only transactions related to business activities should be processed within the business accounts. Basic concepts refer to fundamental principles and assumptions in accounting, such as the entity concept, going concern concept, and matching concept, which apply to all types of transactions, whether they are business-related or not.

Explanation

The statement is false because basic concepts do not state that only transactions related to business activities should be processed within the business accounts. Basic concepts refer to fundamental principles and assumptions in accounting, such as the entity concept, going concern concept, and matching concept, which apply to all types of transactions, whether they are business-related or not.

12. Match the following statements:

This is a key concept and is the idea that the accounts are prepared on the assumption that the business will continue to trade for the foreseeable future.

This principle states that only items whose inclusion or exclusion would affect the accounts in such a way that the user’s opinion of the companies is altered by that inclusion or otherwise should be recorded.

This allows the results of an organisation to be more easily compared with its early results, providing a sound basis for analysis.

This is the concept that profits can only be included in the accounts when they are certain to take place.

This is the idea that expenses and revenue should be recognised in the period that they occur, and not in the period in which the cash flow takes place.

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