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Double Entry Bookkeeping and Nominal Ledger (T-Accounts) - Questions and Answers, Exams of, Exams of Accounting

Florida Memorial UniversityAccounting

Double Entry Bookkeeping and Nominal Ledger (T-Accounts) - Questions and Answers, Exams of Accounting

Typology: Exams

2025/2026

Available from 11/14/2025

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Double Entry Bookkeeping and
Nominal Ledger (T-Accounts) -
Questions and Answers, Exams of
Accounting
A credit entry will: - correct answerdecrease an asset, increase a liability, decrease an
expense, increase capital, increase income
A debit entry will: - correct answerincrease an asset, decrease a liability, increase an
expense, decrease capital, decrease income
Accounting for early settlement discounts offered to customers - correct answerSales
should be recorded net of early settlement discounts taken by customers. However, at
the point of invoice, when the sale is recorded in the accounting system, the business
does not know whether or not the customer will take the early settlement discount
offered. Therefore, when the sale is recorded, the business should determine whether
they expect the customer to take the discount or not based on their knowledge of the
customer and whether the customer has previously taken advantage of such discounts,
and record the sale accordingly. If, when payment is made, the customer does not
behave as expected, eg, does take a discount when they were not expected to, the
accounting records are adjusted to reflect the full gross value of the goods sold.
Accounting for early settlement discounts received from suppliers - correct
answerAccounting for early settlement discounts offered to a business by its suppliers is
consistent with the approach described above. Any early settlement discount received is
offset against purchases or other appropriate expense category. A judgement should be
made when the invoice is recorded as to whether or not the business is likely to take
advantage of the early settlement discount offered.
Accounting for trade discounts - correct answerPurchases should be recorded net of
trade discounts received from suppliers. Sales should be recorded net of trade
discounts given to customers. Trade discounts should be deducted before any early
settlement discount is calculated.
Accounting for VAT - correct answerAs a general principle the treatment of VAT in the
trader's ledger accounts should reflect the trader's role as tax collector, so VAT should
not be included in income or in expenses, whether of a capital or a revenue nature.
Calculating VAT from a gross amount - correct answerf you are told that an amount
includes VAT at 20% (a gross amount), you can calculate the VAT element by
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Double Entry Bookkeeping and

Nominal Ledger (T-Accounts) -

Questions and Answers, Exams of

Accounting

A credit entry will: - correct answerdecrease an asset, increase a liability, decrease an expense, increase capital, increase income A debit entry will: - correct answerincrease an asset, decrease a liability, increase an expense, decrease capital, decrease income Accounting for early settlement discounts offered to customers - correct answerSales should be recorded net of early settlement discounts taken by customers. However, at the point of invoice, when the sale is recorded in the accounting system, the business does not know whether or not the customer will take the early settlement discount offered. Therefore, when the sale is recorded, the business should determine whether they expect the customer to take the discount or not based on their knowledge of the customer and whether the customer has previously taken advantage of such discounts, and record the sale accordingly. If, when payment is made, the customer does not behave as expected, eg, does take a discount when they were not expected to, the accounting records are adjusted to reflect the full gross value of the goods sold. Accounting for early settlement discounts received from suppliers - correct answerAccounting for early settlement discounts offered to a business by its suppliers is consistent with the approach described above. Any early settlement discount received is offset against purchases or other appropriate expense category. A judgement should be made when the invoice is recorded as to whether or not the business is likely to take advantage of the early settlement discount offered. Accounting for trade discounts - correct answerPurchases should be recorded net of trade discounts received from suppliers. Sales should be recorded net of trade discounts given to customers. Trade discounts should be deducted before any early settlement discount is calculated. Accounting for VAT - correct answerAs a general principle the treatment of VAT in the trader's ledger accounts should reflect the trader's role as tax collector, so VAT should not be included in income or in expenses, whether of a capital or a revenue nature. Calculating VAT from a gross amount - correct answerf you are told that an amount includes VAT at 20% (a gross amount), you can calculate the VAT element by

multiplying the gross amount by 20%/120% or 1/6. Therefore the net amount will always be 5/6 of the gross amount. double entry bookkeeping - correct answerLedger accounts, with their debit and credit sides, are kept in a way which allows the two sided nature of every transaction to be recorded. This is known as double entry bookkeeping, because every transaction is recorded twice in the ledger accounts. Double entry for cash transactions - correct answerA good starting point is the cash at bank account in which receipts and payments of cash are recorded based on the transaction reports downloaded from the electronic banking system. • A cash payment is a credit entry in the cash at bank account. Here cash (an asset) is decreasing. Cash may be paid out, for example to pay an expense (such as insurance) or to purchase an asset (such as a machine). The matching debit entry is therefore made in the appropriate expense or asset account. • A cash receipt is a debit entry in the cash at bank account. Here cash (an asset) is increasing. Cash might be received, for example, by a retailer who makes a cash sale. The credit entry would then be made in the revenue (income) account (and the VAT account if relevant). Double entry for credit transactions - correct answerNot all transactions are settled immediately. A business can purchase goods or non-current assets on credit terms, so that balances owed to suppliers would be trade payables until settlement was made in cash at a later date. Equally, the business might grant credit terms to customers, so the balances owed by customers would then be trade receivables of the business. No entries are made in the cash at bank account when a credit transaction occurs, because no cash has been received or paid. Instead we use receivables and payables accounts. When a business acquires goods or services on credit, the credit entry is posted to the 'trade payables' account instead of the cash account. The debit entry is posted to the expense or asset account, exactly as in the case of cash transactions. Similarly, when a sale is made to a credit customer, the entry is a debit to the trade receivables account (instead of cash account), and a credit to the sales account. Double entry for petty cash transactions - correct answerA business starts with a cash float (imprest) on 1.3.20X7 of £250. This will be a payment from cash at bank to petty cash: DEBIT Petty cash £250 CREDIT Cash at bank £250. At the end of each month (or at any other suitable interval) the total payments in the petty cash book are posted to the appropriate nominal ledger accounts. This just means that the totals of the columns are entered as debit and credit entries in the ledger accounts. Dual effect (duality concept) - correct answerDouble entry bookkeeping is the method used to record transactions in the nominal ledger accounts. Central to this process is the idea that every transaction has two effects, the dual effect (also known as the duality concept). This feature is not something peculiar to business.

cost. This will increase their expenses and the cost of any non-current assets they purchase. 26 Financial Accounting Session 4 • Registered traders who also carry on exempted activities may suffer VAT on certain inputs. This will increase the expense in respect of these inputs. • Non-deductible inputs will be borne by all traders. - VAT on cars purchased and used in the business is not reclaimable (VAT on a car acquired new for resale, ie, by a car trader, is reclaimable). - VAT on business entertaining is not deductible as input tax other than VAT on entertaining staff. Where VAT is not recoverable it must be regarded as part of the cost of the items purchased and included in the statement of profit or loss or statement of financial position as appropriate. Ledger - correct answerA specialized accounting book or computer program in which information from accounting journals is accumulated into specific categories and posted so that managers can find all the information about one account in the same place. memorandum ledgers - correct answerthey are not part of the double entry system. Instead trade receivables and trade payables accounts are kept in the nominal ledger which record the totals of the receivables and payables ledgers. nominal ledger - correct answerThe nominal ledger contains details of assets, liabilities, capital, income and expenditure, and therefore profit and loss. It consists of a large number of different ledger accounts, each account having its own purpose or 'name' and an identity or code. Nominal ledger accounts - correct answerNominal ledger accounts relate to types of income, expense, asset, capital and liability - rent, sales, trade receivables, payables and so on - but do not record individual details relating to the person to whom the money is paid or from whom it is received. Payables ledger - correct answerThe payables ledger, like the receivables ledger, consists of a number of personal accounts. These are separate accounts for each individual supplier, and they enable a business to keep a continuous record of how much it owes each supplier at any time. As we will see in Session 6, businesses regularly receive statements from their suppliers which show how much is owed at a point in time. personal accounts - correct answermost commonly for receivables and payables, and these are contained in the receivables ledger and the payables ledger. These are memorandum accounts only, Receivables ledger - correct answerA business must also keep a record of how much money each individual credit customer owes, and what this total debt consists of. The need for a personal account for each customer is a practical one. • A customer might ask how much they currently owe. Staff must be able to tell them. • It is a common practice to send out statements to credit customers at the end of each month, showing how much they owe, and itemising new invoices or credit notes sent out and payments

received during the month. • The business managers will want to check the credit position of individual customers, and to ensure that no customer is exceeding their credit limit. Registered and non-registered traders - correct answerTraders whose sales (outputs) are below a certain level need not register for VAT although they may do so voluntarily. Unregistered traders neither charge VAT on their outputs nor are entitled to reclaim VAT on their inputs. They are in the same position as a final consumer. outputs of registered traders are either taxable or exempt. Traders carrying on exempt activities (such as banks) cannot charge VAT on their outputs and consequently cannot reclaim VAT paid on their inputs. Summary of accounting treatment for early settlement discounts - correct answerTrade discounts should be deducted before any cash discount is calculated. T account format - correct answerThere are two sides to the account, with an account heading on top. The lines form a 'T', so this is what we mean by 'T'-account'. • On top of the account is its name. • There is a left hand, or debit side. • There is a right hand, or credit side. Taxable outputs are chargeable at one of three rates: - correct answer• zero rate (on printed books and newspapers for instance) • reduced rate (5% on domestic fuel) • standard rate: 20% The basic rule, which must always be observed, is that every financial transaction gives rise to two accounting entries, one a debit and the other a credit. The total value of debit entries in the nominal ledger is therefore always equal to the total value of credit entries. Which account receives the credit entry and which receives the debit entry depends on the nature of the transaction. - correct answer• An increase in an expense (eg, a purchase of stationery) or an increase in an asset (eg, a purchase of office furniture) is a debit. • An increase in income (eg, a sale) or an increase in a liability (eg, buying goods on credit) or capital is a credit. • A decrease in an asset (eg, making a cash payment) or a decrease in an expense is a credit. • A decrease in a liability (eg, paying a credit supplier) or capital or income is a debit. The format of a ledger account - correct answerAn accounting record captures more than the amount of the transaction. It will record the date, a brief description of the transaction and often a unique reference. Throughout Accounting and elsewhere in your studies, we will use a T-account format to present the entry of a transaction into a ledger account. The frequency with which businesses prepare a VAT return and make payments to HMRC depends on the amount of the taxable sales of the business, alongside other conditions such as the type of business, the history of preparing VAT returns on time and the history of making payments on time. - correct answer• The most usual position

What are journal entries used for? - correct answerA journal entry is a way of presenting the required double entry (debits and credits) for a transaction. Any transaction can be represented by a journal entry. However, journal entries are generally used to record unusual or one off transactions, such as the correction of an error What is VAT? - correct answerValue added tax (VAT) is an indirect tax on the supply of goods and services. Tax is collected at each transfer point in the chain from prime producer to final consumer. Eventually, the consumer bears the tax in full and any tax paid earlier in the chain can be recovered by a registered trader who paid it.