The accounting system: Practice Questions

An accountant records a transaction where cash is received from a credit customer. Which entries are required in the ledger accounts?

A sole trader buys a new delivery van using a bank loan. How does this affect the accounting equation?

A business pays its annual insurance premium of \(\$2,400\) by cheque. Which entries would be made in the ledger accounts to record this transaction using the double entry system?

Which accounting concept states that a business is separate and distinct from its owners?

(a) State the accounting equation.

(b) At the beginning of the month, a business had assets of \(\$50,000\) and liabilities of \(\$20,000\). During the month, the following transactions occurred:
1. The owner introduced an additional \(\$5,000\) in cash as capital.
2. The business purchased inventory worth \(\$3,000\) on credit.
3. A loan of \(\$2,000\) was repaid in cash.

Calculate the closing capital of the business at the end of the month.

A trainee accountant for D. Miller prepared a trial balance at 31 December 2023 which did not balance. The difference was entered into a suspense account. Upon investigation, the following errors were discovered:

1. A sales invoice for \$850 was entered in the sales journal as \$580.
2. A cheque for \$120 received from a credit customer, J. Smith, was correctly entered in the cash book but posted to the ledger account of J. Smythe.
3. The cost of a new machine, \$3,000, was debited to the repairs account.
4. Cash sales of \$400 had been completely omitted from the accounting records.
5. Rent paid of \$500 was debited to the rent account as \$50 and credited to the bank account as \$500.

(a) Prepare the journal entries to correct errors 1 to 5. Narratives are not required.
(b) Identify the specific type of accounting error for Error 2 and Error 3.
(c) Calculate the net increase or decrease in the draft profit for the year resulting from these corrections.