Accounting mini exam 1 - grade 8 Flashcards
What is accounting?
The art of recording, classifying and a summarizing translations in terms of money, and interpreting results
What is a transaction?
Refer to buying and selling goods or services and the receipt and payment of money
What can no business operate without?
An accounting or bookkeeping system
What does an accounting and bookkeeping system do?
Allows the business and mangers to see what is happening to the money coming into and going out of the business
What are the five different forms of ownership in South Africa?
Sole trader, partnerships, close corporations, private companies and public companies
What is ownership when it comes to sole traders?
Only has one owner
What is capital contribution when it comes to sole traders?
The owner contributes all the capital in the business. His own money or possessions or by borrowing money from a financial institution. Capital is limited
What is management when it comes to sole traders?
Responsible for the management. They may employ other people to assist them
What is liability when it comes to sole traders?
Responsible for all debts of the business in their own capacity. They have unlimited liability. Any debts the business owes can be claimed back directly from the owner. If the business makes a profit, the owner will receive all of it
What is continuity when it comes to sole traders?
The life span of the business is limited to the owners life span. If the owner passes away the business will no longer exist. The business may be ceded to someone else in their will. The business will have a new owner so it will be a new business.
What is taxation when it comes to sole traders?
Owner pays tax on the business’s profit in their personal capacity. Any profit earned is added to his income and tax accordingly
What is accounting based on?
A double entry system. Every transaction there are two parts
What happens when the transaction is recorded in a journal or posted to the general ledger?
When recorded in the journal it’s recorded in two different columns. When paired in the general ledger it is recorded into two accounts
What will happen to each account? (double entry system)
One is always debuted and one is always credited. The transaction balances out
When and who described the double entry system?
In 1494, Lucas Pacioli
What does the double entry system revolve around?
Revolves around the principle that states ‘for every debut, there is credit.’
What does debit refer to? Give the abbreviation
Debit refers to the left side of an account. Dr.
What does credit refer to?
Credit refers to the right side of an account. Abbreviated Cr.
What happens when you record an entry in the left hand column?
When you record an entry in the left hand column of an account you are debuting that account
What debiting an account what does increasing or decreasing depend on?
An increase or decrease depends on the type of account
What happens when you record an entry in the right hand column?
When you record an entry in the right hand column of an account you are crediting that account
What crediting an account what does increasing or decreasing depend on?
An increase or decrease depends on the type of account
What increases on the debit side?
Asset and expense accounts increase in the debit side
What increases on the credit side?
Liability, owner’s equity and income accounts increase on the credit side
What is owner’s equity?
The owners share or contribution to the business. The owner or entrepreneur not only brings skill to the business, also has to make a financial contribution to get the business started
What does owner’s equity consist of?
Consists of capital, drawings, and net income (profit)
What is owner’s equity made up by the difference between
Made up by the difference between incomes and expenses
What is capital?
Cash or goods used by an owner to generate income by investing into the business
What do all businesses require in order to start and continue to run?
Capital
What do owner’s contribute to make a profit?
Capital
What is monetary or financial capital?
Monetary or financial capital is capital in the form of money and can be either own capital or borrowed capital
What is own capital?
The owner contributes their own money to the business. They owner purchases shares and are known as shareholders
What is borrowed capital?
The business takes out a loan with a financial institution. The loan must be repaid over a certain time period with interest charges.
What is physical assets?
Owner can contribute in ways other than money. Owners will contribute vehicles, equipment, or buildings. It is given a monetary value in financial records
What is intellectual capital?
Specialized skills or abilities the owner may bring into the business. Skills will increase the value of the business through its performance. It is not recorded in financial records
What does capital increase?
Capital increases owner’s equity
What is drawings?
The owner is entitled to withdraw money or take assets like equipment or furniture or have their personal expenses covered by the business. Anything the owner takes from the business, whether it’s money, stick or equipment etc.
What are drawings shown in?
Drawings are shown in the account of the same name
Why can’t drawings be treated like a normal business expense?
Drawings cannot be treated like a normal business expense, they belong to the owner not the business
What account are drawings in?
Drawings are in the owner’s equity account. But will decrease owner’s equity
Why does drawings decrease the owners equity account?
It acts the opposite way of capital. The owner is taking money from the business
Where will drawings increase? Debit or credit?
Drawings will increase the debit side. D for D
Why do owners contribute their capital?
Owners contribute their capital in order to achieve a good return on their investment. Meaning that the business will show a good profit.
What is profit?
Profit is achieved when the money the business makes is greater than the money spent.
When does a business make a loss?
A business makes a loss when it spends more money than it earns
How does money flow into the business?
Money flowed into the business in the form of incomes
How does money flow out of the business?
Money flows out of the business in the form of expenses
What is income?
An amount of money received, during a period of time in exchange for labor of services from a sale of goods
What two income accounts are used when a business sells its services or products?
When a business sells its services or products, the two income accounts are known as current income and sales.
How can money be earned?
Money can be earned by renting property
How can interests be earned?
Interests can also be earn on any investments the business has made
What does income increase?
Income increases the profit of a business. It increases owner’s equity
Which side on the double entry system does income increase?
The credit side
What is expenses?
Money spent or cost returned in a business effort to generate revenue? representing the cost of doing business. Money that is spent the business in order to keep it running everyday
How often must expenses be paid?
Many expenses must be payed monthly, other can occur infrequently
What do businesses need to ensure when it comes to expenses?
Businesses need to ensure that they have both a high income and can manage their expenses well
Give examples of expenses
telephone, water abs electricity, rent expenses, wages and salaries
Does expenses increase or decrease owner’s equity?
It decreases owners equity
What is an asset?
Any item of economic value owned by an individual or business that can be converted to cash Assets are with money to the business and increase its wealth.
What do businesses need in order to run efficiently? (assets)
- A building/land
- Furniture (desk and chair)
- Equipment (printer and computers)
- Money
Do assets increase or decrease the monetary value of a business?
Assets increase the monetary value of a business
What two groups can assets be divided up into?
Fixed / non-current assets
Current assets
What are fixed assets?
Also known as non current assets. They create more money for the business
What is the life span of a fixed asset?
Have a life span of longer than 12 months
Why are fixed assets generally bought?
To assist in production or in the provision of the business’s service
What are the intentions of the buyer when they buy fixed assets?
They have the intention of no reselling the asset
How many types of fixed assets are there? Name them
There are four types. Land and building, investments, vehicles and equipment
What are land and building assets?
They are fixed assets. Money invested in buildings and land bought by the business. If the business were to sell, it would bring money into the business
What are investments assets?
investments are fixed assets. Money that the business has invested in long-term investment. Like to fixed deposits is ‘tied up’ for a certain time but still has value
What is vehicle assets?
vehicles are fixed assets. money invested in vehicles purchased, whether for cash on credit
What is the equipment asset?
equipment are fixed assets. Money invested in machinery and equipment. For example computers and manufacturing equipment. It can be turned into cash
What is a current asset?
The asset will be turned into cash within a 12 month period.
What are current assets for?
Current assets are for the provisions of the business’s goods and services.
How many types of current assets are there? Name them.
There are five types of current assets. Trading stock, debtors control, bank, petty cash and cash float
What is the trading stock asset?
trading stock is a current asset. money invested in goods that have been bought by the business for the purpose of reselling.
What is the debtors control asset?
Debtors control is a current asset. A summary of people who owe money to the business
What is the bank asset?
Bank is a current asset. The amount of money that the business has in its current bank account or cheque account. Used on a monthly basis
What is the petty cash asset?
Petty cash is a current asset. money the business keeps in a petty cash box which is used for business purchases that are too small to warrant the issuing of a cheque
What is the cash float asset?
It is a current asset. money that is kept in the business’s cash register.
Which side in an account do assets increase?
Assets increase on the debit side
What is liabilities?
A business’s debts or obligations that arise during the course of business operations.
What does it mean when a business owes money to another institution. (liability)
Most businesses that purchase their property will need to borrow money to finance these purchases.
How many categories can liabilities be discuss into? Name them
Tow categories. Long term liabilities (non current) and current liabilities
What are long term liabilities?
Also known as non current liabilities. Taken out for longer than 12 months abs lady back monthly.
How many types of long term liabilities are there? Name them
one type which is loans
What are loan liabilities?
The business borrows money from a financial institution and repays it over a certain amount of time.
What are current liabilities?
current liabilities are paid back within a 12 month period.
How many types of current liabilities are there? name them.
There are two types. Creditors control and SARS
What is the creditor control liability?
Also known as account payable. when a business buys goods or services on credit, it still owes the supplier money. The supplier is a creditor to the business. The business pays the creditor back over a few months
What is the SARS liability?
Also known as the South African Revenue Services. The receiver of the revenue (tax man) is owed money by the business in the form of VAT and income tax.
What is a bank account generally called?
A current or cheque account
What is it important to do when opening a bank account?
To look for different banks and find out the cost for each
When are back charges higher?
Bank charges a higher on accounts with lower balances
What are banks? i
Banks are financial institutions and attempt to offer complete packages.
What do banks enable?
Enabling a customer to bank their money, take out personal and home loans, invest in shares all in one place. The person may deposit and withdraw money at anytime
What do business withdrawals isaiah take form in?
Business withdrawals usually take the form of cheques
Why do business withdrawals usually take the form of cheques?
It is to easily track their money
What is an example of internet banking?
EFT. Electronic fund transfers
Is a bank a business?
Yes. Therefore bends to charge for its services. Charges are deducted from their clients accounts
What is the cash handling fee?
Charges for all cash deposits and withdrawals at the teller
Who are the printing costs of cheque books go to?
The printing costs of the cheque books are charged to the customers, as well as tax on draw cheques
What forms part of the state’s income?
Banks deduct governments levies for every transaction made. Then pay the government. It forms part of the state’s income
What are source documents?
every transaction is recorded in a source document. Different source documents represent different transactions
What is a transaction?
A transaction is any exchange of money between two parties
What do source documents show?
Source documents show the source (start) of a transaction and when it occurred
What are examples of source documents?
Receipt, cash register roll or cash slip, cash invoice, deposit slip, cheque and cheque counterfoil, and a bank statement
What is a cash receipt?
When a business receives money, it needs to issue a source document to the person who is paying. Especially when money is not deposited directly into the business’s bank account. It is a formal recognition that the money was received
What happens when the owner gives money to the business? (cash receipt)
when the owner gives money to the business, the business must issue a receipt to the owner. The owner should be treated as a separate individual to the business. As well as his business and personal bank account must be separated
Must the business keep the original or duplicate receipt?
The business keeps the duplicate receipt. They give the original to the person from whom it receives the money
What must a cash receipt contain?
- Name of the business issuing the receipt.
- A receipt number
- Date if receipt
- Who they money was received from
- What the money was received for
What is a cash invoice?
some businesses do not use the cash register and so cannot issue a cash register roll. Instead issue a cash invoice. The invoice is issued to the customer who pays the amount required. It can be signed or stamped as paid. Acts as a receipt at the same time
What must a cash invoice require?
- Name or the business issuing the invoice
- Invoice number
- Date of transaction
- Description and cost of the purchase
Why do businesses seldom pay in cash?
cash is a high is a security risk and very little to prove that the cash is being paid. They would rather use an EFT or a cheque
What is a cheque counterfoil?
A cheque is easy traceable and can be cancelled. The business retains the cheque counterfoil, as proof that they have paid the money. It the stub that remains inside a cheque book.
What is a drawer?
The holder of the account and issuer ay of the cheque
What is the drawee?
The bank that is issuing the money
What is the payee?
The person or business being issued the cheque (receiving the money)
Why do businesses retain the cheque counterfoil?
The business retains the cheque counterfoil as proof that they have paid the money.
What part of the cheque is handed to the payee?
The cheque is handed over to the payee or The duplicate carbon copy that remains in the cheque book. It remains in the business permanently
What must a cheque counterfoil contain?
The same information as a cheque
• Date of the cheque
• Who the cheque is made out to (name of payee)
• Reason for the cheque being issued
• Amount of the cheque
•Cheque number
Why is the cheque counterfoil used as a source document?
It is used as the source document for recording the cheque
What is the accounting equation?
Assets = owner’s equity + liabilities
What is the CRJ?
Cash receipts journal
All businesses have to keep a complete record of all transactions. Transactions are recorded on source documents, then required to be recorded in a journal.
Where does the main form of income come from? (CRJ)
Main form of income will be in the form of services that the business renders.
What account is used for the income in CRJ?
Account used for this money is called current income
What is COD. Cash on delivery?
A cash invoice js sent to a customer along with goods being delivered as the amount is required to be paid
