Review Exercises

Exercise 1

The information that follows refers to the business of Peter Bright on 31 January 2021: freehold property £40,000, debts due to suppliers £2,350, stock £6,800, cash £180, bank overdraft £1,000, debts due from customers £1,900, furniture and fittings £3,000, delivery vehicle £2,000, mortgage on property (10 years) £5,000, loan from ABC Finance Limited (5 years) £3,000.

Oh, Zero, Love, Nought, Nil.

The above are all ways of saying 0 in English. Watch this PowerPoint Presentation to learn much more...

Double-entry bookkeeping is more robust. It follows the principle that every transaction affects at least two accounts, and they are recorded as debits and credits. For example, if you make a sale for $10, your cash account (assets) will be debited (increased) for $10 and your sales account (assets) will be credited (decreased) by the same amount. In the double-entry system, the total credits must always equal the total debits. When this happens, your books are “balanced.”

Using the double-entry method for bookkeeping makes more sense if your business is large, public, or buys and sells on credit. Enterprises often choose the double-entry system because it leaves less room for error. In a way, it ‘double-checks’ your books because each transaction is recorded as two matching but offsetting accounts.

Why bookkeeping is it important?

Bookkeeping is the process of recording your company’s financial transactions into organized accounts on a daily basis. It can also refer to the different recording techniques businesses can use. Bookkeeping is an essential part of your accounting process for a few reasons. When you keep transaction records updated, you can generate accurate financial reports that help measure business performance. Detailed records will also be handy in the event of a tax audit.

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Question:

Do we really have to understand each word in a foreign language to comprehend a conversation. Do we need to be an accountant to understand accounts?