1. What is the accounting equation?

The accounting equation is Assets = Liabilities + Equity.

2. Define asset and give an example.

An asset is a resource owned by a company that has economic value and is expected to provide future
benefit. Example: Cash, inventory, property, plant, and equipment.

3. What is the difference between a journal and a ledger?

A journal is the first record of a transaction, whereas a ledger is a record of all transactions affecting a
particular account.

4. What is a debit note?

A debit note is a document sent by a buyer to a seller, indicating that the buyer wishes to claim a debit
against the seller’s account for a returned item or for an overpayment.

5. Define “contra entry” in accounting.

A contra entry is an accounting entry that offsets or cancels out the effect of a previous accounting
entry.

6. What is the purpose of preparing a trial balance?

The purpose of preparing a trial balance is to ensure that the total of all debits equals the total of all
credits in the ledger.

7. What is the difference between cash book and bank book?

A cash book records cash transactions, whereas a bank book records bank transactions.

8. Define accounts payable and accounts receivable.

Accounts payable are amounts owed to suppliers for goods or services purchased on credit, whereas
accounts receivable are amounts owed to a company by customers for goods or services sold on credit.
 9. What is the accounting treatment for sales returns?

Sales returns are recorded as a debit to sales returns account and a credit to the customer’s account.

10. What is the purpose of a trading account?

The purpose of a trading account is to determine the gross profit or loss of a business.

11. What is the difference between capital and revenue expenditure?

Capital expenditures are investments in long-term assets, whereas revenue expenditures are expenses
incurred in the normal course of business operations.

12. What is a cash discount?

A cash discount is a reduction in the amount owed by a customer if they pay their invoice within a
certain time period.

13. What is the difference between bills receivable and bills payable?

Bills receivable are bills that a company expects to receive payment for in the future, whereas bills
payable are bills that a company owes to others.

14. What is goodwill?

Goodwill is an intangible asset that represents the value of a company’s reputation, brand, and
customer loyalty.

15. Define the term “bad debts.”

Bad debts are debts that are unlikely to be collected from customers.

16. What is the purpose of a profit and loss account?

The purpose of a profit and loss account is to determine the net profit or loss of a business.

17. What is a purchase return?

A purchase return is when a buyer returns goods to a supplier.

 18. What is the difference between a provision and a reserve?

A provision is a liability that is uncertain in timing or amount, whereas a reserve is a portion of profit
that is set aside for future use.

19. What is a credit note?

A credit note is a document sent by a seller to a buyer, indicating that the seller wishes to reduce the
buyer’s account balance for a returned Item or for an overpayment.

20. Define “posting” in accounting.

Posting is the process of transferring information from a journal to a ledger.

21. What is an outstanding expense?

An outstanding expense is an expense that has been incurred but not yet paid.

22. What is a suspense account?

A suspense account is a temporary account used to record transactions for which the appropriate
account cannot be

23. What is a contra account?

A contra account is an account that is used to offset the balance of another account.

24. What is meant by the term “double-entry bookkeeping”?

Double-entry bookkeeping is a system of accounting where every transaction is recorded in at least two
accounts, with one account being debited and the other being credited.

25. What is the difference between a fixed asset and a current asset?

Fixed assets are assets that are expected to last for more than one accounting period, whereas current
assets are assets that are expected to be converted into cash within one year.
 26. Define the term “debit.”

A debit is an entry made on the left-hand side of an account, which increases assets and expenses, and
decreases liabilities and equity.

27. What is the difference between gross profit and net profit?

Gross profit is the difference between sales revenue and the cost of goods sold, whereas net profit is the
difference between total revenue and total expenses.

28. What is the difference between tangible and intangible assets?

Tangible assets are physical assets, such as land, buildings, and equipment, whereas intangible assets
are non-physical assets, such as patents, copyrights, and goodwill.

29. What is a contra expense account?

A contra expense account is an account used to reduce the balance of an expense account.

30. What is the purpose of a balance sheet?

The purpose of a balance sheet is to show a company’s financial position at a specific point in time by
listing its assets, liabilities, and equity.

31. What is a purchase journal?

A purchase journal is a record of all purchases made on credit.

32. Define “accounts.”

Accounts are records that are used to keep track of the changes in each element of the accounting
equation.

33. What is a suspense account used for?

A suspense account is used to temporarily hold transactions for which the appropriate account cannot
be determined.

34. What is an accrued income?

An accrued income is income that has been earned but not yet received.

35. What is a closing entry?

A closing entry is an entry made at the end of an accounting period to transfer the balances of revenue
and expense accounts to the income summary account.

36. What is the difference between a revenue reserve and a capital reserve?

A revenue reserve is a portion of profit that is set aside for future use in the business, whereas a capital
reserve is a portion of profit that is set aside for specific long-term purposes, such as the purchase of
fixed assets.

37. What is an invoice?

An invoice is a document that shows the details of a sale, including the date, description, quantity, and
price of the goods or services sold.

38. What is a trial balance?

A trial balance is a list of all the accounts in the ledger with their respective debit or credit balances,
used to ensure that the total of all debits equals the total of all credits.

39. What is the difference between a creditor and a debtor?

A creditor is a person or company to whom money is owed, whereas a debtor is a person or company
who owes money.

40. What is a contra liability account?

A contra liability account is an account that is used to reduce the balance of a liability account.

41. What is the difference between a direct cost and an indirect cost?

A direct cost is a cost that can be directly attributed to a particular product or service, whereas an
indirect cost is a cost that cannot be directly attributed to a particular product or service.

42. What is a purchase discount?

A purchase discount is a reduction in the amount owed by a buyer if they pay their invoice within a
certain time period.

43. What is a petty cash book?

A petty cash book is a record of small cash transactions, typically used to pay for small expenses.

44. What is meant by the term “depreciation”?

Depreciation is the process of allocating the cost of a fixed asset over its useful life.

45. What is a general ledger?

A general ledger is a book or computer program that contains all the accounts used by a business,
including assets, liabilities, equity, revenue, and expenses.

46. What is the difference between a cash book and a bank statement?

A cash book is a record of all cash transactions, whereas a bank statement is a record of all transactions
that have taken place in a bank account.

47. What is a suspense account?

A suspense account is an account used to temporarily hold transactions for which the appropriate
account cannot be determined.

48. What is a dividend?

A dividend is a payment made by a company to its shareholders out of its profits.

49. What is the purpose of a profit and loss account?

The purpose of a profit and loss account is to show a company’s financial performance over a specific
period of time by listing its revenues and expenses and calculating its net profit or loss.

50. What is the difference between a direct expense and an indirect expense?

A direct expense is an expense that can be directly attributed to a particular product or service, whereas
an indirect expense is an expense that cannot be directly attributed to a particular product or service.
51. What is a credit note?

A credit note is a document used to record a reduction in the amount owed by a customer to a seller.

52. What is a trial balance used for?

A trial balance is used to check the accuracy of the ledger accounts by ensuring that the total of all debit
balances equals the total of all credit balances.

53. What is a contra revenue account?

A contra revenue account is an account used to reduce the balance of a revenue account.

54. What is the difference between a cash discount and a trade discount?

A cash discount is a reduction in the amount owed by a buyer if they pay their invoice within a certain
time period, whereas a trade discount is a reduction in the list price of a product or service.

55. What is a ledger account?

A ledger account is a record of all transactions for a particular account, including debits, credits, and
balances.

56. What is meant by the term “accounts payable”?

Accounts payable are amounts owed by a company to its suppliers for goods or services purchased on
credit.

57. What is a contra equity account?

A contra equity account is an account used to reduce the balance of an equity account.

58. What is meant by the term “current ratio”?

The current ratio is a measure of a company’s ability to pay its current liabilities using its current assets,
calculated by dividing current assets by current liabilities.
59. What is a capital account?

A capital account is a record of a company’s investments by its owners, including contributions and
withdrawals.

60. What is meant by the term “closing stock”?

Closing stock is the value of inventory that remains unsold at the end of an accounting period.

61. What is a journal voucher?

A journal voucher is a document used to record a financial transaction in a manual accounting system.

62. What is meant by the term “bad debts”?

Bad debts are debts that are unlikely to be paid by a customer or debtor.

63. What is a memorandum entry?

A memorandum entry is an entry made in the journal to record a transaction that does not involve the
transfer of money or goods.

64. What is meant by the term “provision”?

65. What is a contra asset account?

A contra asset account is an account used to reduce the balance of an asset account.

66. What is meant by the term “ledger folio”?

A ledger folio is a reference number that links a transaction recorded in the journal to its corresponding
entry in the ledger.

67. What is a suspense entry?

A suspense entry is a temporary entry made in the books to balance the accounts when there is a
discrepancy or error.
68. What is meant by the term “invoice”?

An invoice is a document that details the goods or services provided, their quantity and price, and the
terms of payment.

69. What is a contra liability account?

A contra liability account is an account used to reduce the balance of a liability account.

70. What is meant by the term “book value”?

Book value is the value of an asset as it appears on a company’s balance sheet, calculated by subtracting
accumulated depreciation from the cost of the asset.

71. What is a stock reserve?

A stock reserve is a provision made to cover any possible losses that may arise due to a decrease in the
value of stock.

72. What is meant by the term “non-current asset”?

Non-current assets are assets that are not expected to be converted into cash within a year or an
operating cycle.

73. What is a contra expense account?

A contra expense account is an account used to reduce the balance of an expense account.

74. What is meant by the term “gross profit”?

Gross profit is the difference between a company’s revenue and the cost of goods sold.

75. What is a trading account?

A trading account is a financial statement that shows a company’s revenue, cost of goods sold, and gross
profit for a specific period of time.
76. What is meant by the term “working capital”?

Working capital is the amount of money a company has available for day-to-day operations, calculated
by subtracting current liabilities from current assets.

77. What is a contra capital account?

A contra capital account is an account used to reduce the balance of a capital account.

78. What is meant by the term “adjusting entry”?

An adjusting entry is a journal entry made at the end of an accounting period to update accounts that
have not been correctly recorded or to adjust for the passage of time.

79. What is a reserve?

A reserve is a portion of a company’s profits that is set aside for future use, such as for a specific
purpose or to cover potential losses.

80. What is meant by the term “cash equivalent”?

A cash equivalent is an investment that can be readily converted into cash, such as a money market fund
or a treasury bill.

81. What is a consignment?

A consignment is an arrangement where goods are sent by one party to another party to sell on their
behalf, with payment made only when the goods are sold.

82. What is meant by the term “contra entry”?

A contra entry is a journal entry that is used to reverse the effect of a previous entry in the books.

83. What is a trial balance sheet?

A trial balance sheet is a document that lists all the balances of a company’s ledger accounts at a specific
point in time.

84. What is meant by the term “net realizable value”?

Net realizable value is the estimated selling price of an asset minus the costs of selling it.

85. What is a suspense account adjustment?

A suspense account adjustment is a journal entry made to correct an error or discrepancy in the books
of accounts.

86. What is meant by the term “working capital turnover ratio”?

The working capital turnover ratio

87. What is a memorandum voucher?

A memorandum voucher is a voucher that is used to record a transaction that is not of a financial
nature, such as an adjustment made for an error in the books.

88. What is meant by the term “deferred revenue expenditure”?

Deferred revenue expenditure is an expenditure that is incurred during an accounting period but its
benefits are expected to be received in future accounting periods.

89. What is a sinking fund?

A sinking fund is a fund set up by a company to set aside money over a period of time to pay off a long-
term debt.

90. What is meant by the term “accounting cycle”?

The accounting cycle is the process of recording, classifying, summarizing, and interpreting financial
transactions of a business over a specific period of time.

91. What is an accrual?

An accrual is an expense or revenue that has been recognized but not yet recorded in the accounting
books.

92. What is meant by the term “double entry system”?

The double entry system is an accounting method where every financial transaction is recorded in two
accounts, with an equal amount of debit and credit entries.

93. What is a suspense account?

A suspense account is an account used to temporarily hold transactions that cannot be immediately
classified or recorded in the books of accounts.

94. What is meant by the term “retained earnings”?

Retained earnings are the accumulated profits of a company that are not distributed as dividends but
are instead reinvested in the business.

95. What is a capital reserve?

A capital reserve is a portion of a company’s profits that is set aside for specific purposes, such as the
acquisition of fixed assets or repayment of long-term debt.

96. What is meant by the term “liquid ratio”?

The liquid ratio is a financial ratio that measures a company’s ability to pay its short-term liabilities using
its current assets that can be quickly converted into cash.

97. What is a memorandum entry?

A memorandum entry is a note made in the accounting records that records a transaction or event but
does not have a financial impact.

98. What is meant by the term “deferred tax asset”?

A deferred tax asset is an asset created when a company has overpaid taxes in a prior period and is
entitled to a tax refund or when it has carried forward tax losses that can be used to reduce future tax
liabilities.

99. What is a non-current liability?

A non-current liability is a liability that is not expected to be paid off within a year or an operating cycle.

100. What is meant by the term “perpetual inventory system”?

The perpetual inventory system is an inventory management system where a company maintains real-
time records of its inventory levels, using point-of-sale systems and barcode scanners.