Evaluating Accounting Statement Accuracy

Steps:

• Statement 1 correct: Books of prime entry (e.g., sales journal) initiate transaction recording in the double-entry system before ledger posting.
• Statement 2 incorrect: Sales ledger tracks individual debtor balances from credit sales only; cash sales go directly to cash book and nominal ledger.
• Statement 3 correct: Under double-entry rules, liability ledger accounts carry credit balances to reflect obligations; asset accounts balance via debits but align in the credit-driven equation.
• Statement 4 incorrect: Trade accounts (receivables/payables) are balance sheet items, not income statement elements like revenues/expenses.

Why B is correct:

• B selects statements 1 and 3, aligning with the double-entry accounting equation (Assets = Liabilities + Capital), where prime entry supports recording and liabilities hold credit balances by definition.

Why the others are wrong:

• A includes incorrect statement 2 on sales ledger scope.
• C includes incorrect statement 4 on trade account placement.
• D repeats C's error by including statement 4.

Final answer: B