Books of Prime Entry Interview Questions & Answers

Q: What is double-entry bookkeeping?

Double-entry bookkeeping records every transaction with equal debits and credits in at least two accounts, reflecting that every transaction has two effects. It keeps the accounting equation (Assets = Liabilities + Capital) in balance and underpins the trial balance and financial statements.

Q: What is the difference between a debit and a credit?

In double entry, a debit is an entry on the left of an account and a credit on the right. Debits increase assets, expenses, and drawings and decrease liabilities, income, and capital; credits do the opposite. Which to use depends on the account type and the effect of the transaction.

Q: What is the accounting equation and how does bookkeeping maintain it?

The accounting equation is Assets = Liabilities + Capital (owner's equity). Double-entry bookkeeping maintains it because every transaction affects the equation on both sides equally or offsets within one side, so it always balances. The trial balance and balance sheet reflect this equality.

Q: What is the difference between capital and revenue expenditure?

Capital expenditure buys or improves non-current assets giving long-term benefit (capitalized and depreciated). Revenue expenditure is day-to-day running costs consumed in the period (expensed immediately). Correct classification at entry affects profit and the balance sheet, and misclassifying is an error of principle.

Q: What is a ledger?

A ledger is the collection of accounts where transactions are classified and summarized. The nominal (general) ledger holds impersonal accounts (income, expenses, assets, liabilities, capital); the sales and purchases ledgers hold personal accounts for customers and suppliers. Ledgers are written up from the books of prime entry.

Q: How do you record opening entries when starting a new set of books?

Opening entries record the assets, liabilities, and capital at the start of the business or period, usually via the journal. Debit the opening assets and credit the opening liabilities and capital; the capital is the balancing figure (Assets - Liabilities). This establishes the opening position in the ledgers.

What is double-entry bookkeeping?

Beginner

Double-entry bookkeeping records every transaction with equal debits and credits in at least two accounts, reflecting that every transaction has two effects. It keeps the accounting equation (Assets = Liabilities + Capital) in balance and underpins the trial balance and financial statements.

Buy stock for cash 500: Dr Purchases 500; Cr Cash 500.

Real-world example Paying rent both decreases cash and increases an expense, captured by equal debit and credit entries.

Common follow-ups: What does every transaction have? | How does it keep the equation balanced?

Trial Balance Control Accounts Books of Prime Entry

What is the difference between a debit and a credit?

Beginner

In double entry, a debit is an entry on the left of an account and a credit on the right. Debits increase assets, expenses, and drawings and decrease liabilities, income, and capital; credits do the opposite. Which to use depends on the account type and the effect of the transaction.

Assets/Expenses/Drawings: increase = Debit. Liabilities/Income/Capital: increase = Credit.

Real-world example Receiving cash is a debit to cash (asset up); making a sale is a credit to sales (income up).

Common follow-ups: Does a debit always mean an increase? | Which accounts increase with a credit?

Trial Balance Control Accounts Books of Prime Entry

What is the accounting equation and how does bookkeeping maintain it?

Intermediate

The accounting equation is Assets = Liabilities + Capital (owner's equity). Double-entry bookkeeping maintains it because every transaction affects the equation on both sides equally or offsets within one side, so it always balances. The trial balance and balance sheet reflect this equality.

Owner invests 10,000: Assets (cash) +10,000 = Capital +10,000.

Real-world example Taking a loan raises cash (asset) and a liability equally, keeping the equation in balance.

Common follow-ups: What are the three elements? | Why does the equation always balance?

Trial Balance Control Accounts Books of Prime Entry

What is the difference between capital and revenue expenditure?

Intermediate

Capital expenditure buys or improves non-current assets giving long-term benefit (capitalized and depreciated). Revenue expenditure is day-to-day running costs consumed in the period (expensed immediately). Correct classification at entry affects profit and the balance sheet, and misclassifying is an error of principle.

New machine 10,000 = capital (asset); machine servicing 300 = revenue (expense).

Real-world example Buying a delivery van is capitalized; fueling it is revenue expenditure expensed at once.

Common follow-ups: Which is capitalized? | What error results from misclassifying?

Correcting Errors Trial Balance Books of Prime Entry

What is a ledger?

Beginner

A ledger is the collection of accounts where transactions are classified and summarized. The nominal (general) ledger holds impersonal accounts (income, expenses, assets, liabilities, capital); the sales and purchases ledgers hold personal accounts for customers and suppliers. Ledgers are written up from the books of prime entry.

Real-world example After listing invoices in the day book, the bookkeeper posts them into the ledger accounts.

Common follow-ups: What is the nominal ledger? | How are ledgers written up?

Sales & Purchase Ledgers Control Accounts Books of Prime Entry

How do you record opening entries when starting a new set of books?

Advanced

Opening entries record the assets, liabilities, and capital at the start of the business or period, usually via the journal. Debit the opening assets and credit the opening liabilities and capital; the capital is the balancing figure (Assets - Liabilities). This establishes the opening position in the ledgers.

Assets 15,000, Liabilities 5,000: Dr Assets 15,000; Cr Liabilities 5,000; Cr Capital 10,000.

Real-world example A new business journalizes its starting assets and liabilities, with capital as the balancing figure.

Common follow-ups: What is the balancing figure in opening entries? | Which book of prime entry is used?

Trial Balance Correcting Errors Books of Prime Entry