AAT Level 2 Flashcards
Accounting Equation
Assets - Liabilities = Capital
Cash Sale
The sale and the payment happen at the same time.
E.g. Cash/card/cheque.
A till receipt is produced
Credit Sale
The seller provides the buyer with the good/service but payment is not made until later.
An invoice is issued.
The risk of credit sales
- Customer may not pa at the appropriate time
- Customer may not pay at all
The Six Stages of the sales process in order
- Quotation
- Customer order
- Delivery Note
- Invoice
- Credit note (if goods are damaged / returned)
- Remittance advice note
Why is coding used
- So information can be recorded accurately and in a timely manner
- Documents can be filed and retrieved efficiently
Usually coding is alpha-numeric
What are the books of prime entry
- Sales daybook
- Sales returns daybook
- Purchases daybook
- Purchases returns daybook
- Cashbook
- Petty cashbook
- Discounts allowed daybook
- Discounts received daybook
What is the Sales daybook
Lists all the business’s invoices sent to credit customers
Sales returns daybook
Records credit notes given to customers when products are returned.
Can also be recorded as a negative amount on the sales daybook.
What is recorded on the cashbook debit side
Money that is received by the business
What is recorded on the cashbook Credit side
Money paid out by the business
What is the two column cash book
Two columns:
- Cash: records amounts received or paid by CASH only
- Bank: Records amounts paid/received through the bank e.g. cheque / BACS etc.
Cashbook - and VAT
When credit customers pay, No VAT is recorded in the Cashbook as this has previously been recorded.
Purchases daybook
Records purchase invoices received
Purchases Returns daybook
Records goods the business has purchased and then returned due to them being faulty etc.
A list of credit notes received
Sales Ledger
A record that contains ledger accounts for every credit customer.
Customer ledger account shows how much each credit customer owes the business
Purchase Ledger
A record containing ledger accounts for every credit supplier.
Ledger account shows how much the business owes that supplier.
Sales Ledger Debit and Credits
Left side (Debit) - Invoices are recorded increasing the amount owed by the customer.
New invoices are debited to the Sales Ledger account.
Right side - (Credit) - Credit notes, payments, Prompt payment discounts are recorded. All decreasing how much the customer owes. Credits the account.
Purchase Ledger Debits and Credits
Left side (Debits) - Credit notes, prompt payment discounts, payments are recorded, decreasing how much the business owes the supplier.
Right side (Credit) - Record invoices increasing how much we owe the supplier.
What is the standard rate of VAT
20%
What can businesses claim VAT back on
Purchases
The difference between Net and Gross total
Net - before VAT
Gross - after VAT
What are the three discounts
- Trade
- Prompt Payment (recorded in discounts allowed / received daybook)
- Bulk
Which discount is not shown on the invoice
Prompt payment - is issued as a credit note as a business has to decide whether to pay quicker and take the discount.
Assets
Items the business owns e.g. cash, machines, amounts owed to the business by credit customers.
Liabilities
Amounts the business owes to other parties e.g. loans, overdraft, amounts owed to credit customers
Income
Main source of income is sales
Expenses
Main source of expenses is purchases
What does a Debit represent
- Increase in Asset
- Increase in Expenses
- Increase in Drawings
- Decrease in Liabilities, Income or Capital
DEAD CLIC
What does a credit represent
- Increase in liability
- Increase in income
- Increase in capital
- Decrease in expenses, assets or drawings
Cash transactions double entry
Cash payment = Credit (Asset is decreasing, matching debit entry is in the new asset / expense account)
Cash receipt = Debit (Asset is increasing, matching credit entry is made in the sales account)
Double entry for credit
