1. Chapter 4

2.  Assets have debit balances  Liabilities and Capital have credit balances

3.  Occasionally, an account that would normally have a debit balance ends up with a credit balance, or vice versa.  Situations where an exceptional account balance may occur:  A customer sends a cheque in payment for more than he/she owes – E.g. A customer sends a cheque for $55 when he/she only owes $50.  A company might temporarily spend more money than it has in the bank (the bank would have to agree to this).  A company overpays an account payable.  A customer with no account balance returns unsatisfactory merchandise for credit.  A company returns goods for credit to a supplier with whom the company has no account balance.

4.  The account ‘Cash’ is to be called ‘Bank’ in the ledger.  Note: When an accountant describes an item as bought for cash, this means that it is paid for at the time it is purchased. However, the payment is usually made by cheque and not by actual cash.

5.  Businesses with good reputations are able to buy goods on short-term credit. E.g. The purchaser is able to delay payment for a short period of time, usually 30 days.

6.  The term ‘on account’ is used in four ways:  If an item is purchased on credit, this means it is not paid for at the time of purchase. This is a purchase on account.  When an item is sold on credit, it is not paid for at the time it is sold. This is a sale on account.  If money is paid out to a creditor to decrease the amount owed to the creditor, it is a payment on account.  When money is received from a debtor to reduce the amount owed, it is a receipt on account.