1. What is an account?
Also referred to as ledger account and “T” account. An account is a record of financial transactions of a specific item (item such as purchases, sales, commission etc) and contains the detail of transactions.
2. What is a real account?
Real accounts are also known as balance sheet accounts and permanent accounts. Real accounts are those accounts that are not closed at the end an accounting period (e.g. a year) and their balances are transferred to next accounting period.
3. What are nominal accounts?
Nominal accounts are also known as income statement accounts and temporary accounts. Nominal accounts are closed off at the end an accounting period (e.g. a year) and their balances are not transferred to next accounting period rather that their closing balances are presented in the income statement
4. What are the books of secondary entries?
Books of secondary entries are all those books of accounts that don’t record transactions in the first place. As opposed to this, they record transactions which have already been recorded by the books of original entries (like cash book, journal etc)
5. What are the different books of secondary entries?
Main ledger accounts such as debtor control account, creditor control account, building account, depreciation account, rent account, sales account, purchases account etc.
Subsidiary ledger accounts such as debtors accounts, creditors accounts, stock account, other ledger accounts
6. What is the difference between nominal and real accounts?
Real accounts are those accounts that are not closed at the end an accounting period (e.g. a year) and their balances are transferred to next accounting period
Nominal accounts are closed off at the end an accounting period (e.g. a year) and their balances are not transferred to next accounting period rather that their closing balances are presented in income statement
7. What is a purchase return account?
Purchase return account is also known as return outward account. Purchase return account is an account maintained to record the amount of purchases returns during an accounting period.
8. What is the major benefit of a ledger account?
The main benefit of ledger account is: it helps summarize and classify different transactions related to the same items or persons which is helpful in preparing financial statements because while preparing financial statement we need the total increase or decrease in an item and person account during an accounting period
9. Why do accountants prepare purchase return and sales return accounts?
Because businesses want to know the amount of total sales and purchases made in an accounting period as separate information from how much of these purchases and sales were actually returned.
10. What is a sales return account?
Sales return account is also known as return inward account. Sales return account is an account maintained to record the amount of sales returns during an accounting period.
11. What is a purchases account?
Purchase account is maintained to record the amount of purchases for an accounting period. Whenever business purchases goods for the purpose of reselling them, it is debited to purchases account. Therefore at the end of the accounting period, it shows the total amount of purchases for that accounting period
12. What is a sales account?
Sales account is maintained to record the amount of sales for an accounting period. Whenever business sells goods in which it primarily deals, it is credited to sales account. Therefore, at the end of the accounting period, it shows the total amount of sales for that accounting period
13. What are the different forms of ledger accounts?
There are two basic forms of ledger accounts,
Self balancing form
14. What are the two main goals of preparing the ledger accounts?
Ledger accounts are used to prepare trial balance which is utilized to assess the accuracy of accounting record
Ledger accounts help classify the transactions related to a particular item which assists in checking the real decrease or increase in the balance of that item
15. Why ledger is referred to as king of all books of accounts?
Because ledger accounts maintain record of all entries and all transactions from the books of original entries are required to be posted in different ledger accounts. Furthermore, trail balance is prepared from ledger accounts and then trial balance is used to prepare financial statements such as income statement, balance sheet etc
16. What is posting?
Posting is the process of recording transactions in the ledger accounts
17. What is the closing balance of an account?
The difference between total debit side of an account and total credit side of an account is the balance of an account or closing balance of an account
Total debit balances – Total credit balances = closing balance of an account
18. What is the nil or zero balance of an account?
If credit and debit sides of an account appear to be equal, the balance or closing balance of an account would be zero
19. What is a debtor ledger account?
A ledger account that is maintained for recording the transactions related to a debtor or account receivable is known as debtor ledger account or accounts receivable ledger account
20. What is a creditor ledger account?
A ledger account that is maintained for recording the transactions related to a creditor or account payable is known as creditor ledger account or accounts payable ledger account
21. What does folio or post ref column in a ledger account indicate?
Folio column is the reference to a specific ledger account or any other book of accounts. In this column, the name of account and page No. on which we have entered the other part of double entry are filled in to help find out the other part of entry.
22. What does the classification of financial information mean?
Grouping the transactions or economic events according to their nature is referred to as classification of financial information. Ledger accounts are the practical example of financial information classification