Principles Of Accounts 2019 Jamb Examination

To record this transaction using double-entry principles, we identify the accounts involved. Rent is an expense; under accounting rules, an increase in an expense is recorded as a debit. The payment was made by cheque, which reduces the business's bank balance (an asset). A decrease in an asset is recorded as a credit. Therefore, the Rent Account is debited to show the cost incurred, and the Bank Account is credited to show the reduction in cash at the bank.

The Profit and Loss Account is designed to determine the Net Profit or Net Loss of a business for a specific accounting period. It starts with the Gross Profit and then accounts for all indirect operating expenses, such as salaries, insurance, and rent, as well as other income. The final balance represents the actual profit available to the owners after all costs have been covered.

Discount received is a form of 'other income' for a business, usually occurring when a firm pays its creditors promptly and receives a reduction in the amount owed. Since it is an indirect income and not part of the core trading activity like sales, it is credited to the Profit and Loss Account to help arrive at the final Net Profit figure.