Accounting Systems

Question 1

What is the purpose and role of accounting records?

Answer 1

. They contain day-to-day entries of monies paid and received.
. Record business assets and liabilities.
. Record sales and purchases.
. Record amounts paid to and by the business.
. Record the current financial position of the business.
. Enable managers to produce financial statements that give a true and fair view of the profit or loss and assets and liabilities of the entity.

Question 2

What are some sources of data for accounting systems?

Answer 2

. Invoices, sales and purchases
. Cheques, written and received
. Credit notes, written and received
. Goods received notes and despatch notes
. Sales orders and purchase orders
. Statements
. Remittance advice (sent alongside a payment toa supplier to let the supplier know which invoice they are paying).

Question 3

What are the five books of prime entry?

Answer 3

Cash book
Sales day book
Purchase day book
Petty cash book
Journal

Question 4

What goes in the cash book?

Answer 4

All entries involving the payment or receipt of cash, including cash sales and cheques.

Question 5

What goes in the sales day book?

Answer 5

All sales on credit

Question 6

What goes in the purchase day book?

Answer 6

All purchases on credit

Question 7

What goes in the petty cash book?

Answer 7

Small cash transactions e.g., purchase of stamps

Question 8

What goes in the journal?

Answer 8

Sundry transactions not initially recorded in any of the above.

Question 9

Cash book can be split into two books. What are they?

Answer 9

Cash receipts and cash payments

Question 10

What can trigger cash book entries?

Answer 10

. Receipt of cheques or cash
. The writing of cheques
. The withdrawal of cash
. Standing orders
. Direct debits
. Bank initiated transactions

Question 11

What is petty cash used for?

Answer 11

Sundry receipts and payments

Question 12

Explain the imprest system

Answer 12

Manager decides the level of petty cash needed, say £100.
When cash is removed it is replaced with a petty cash voucher.
At the end of the period the PCB is filled in from vouchers
Petty cash is topped up to £100 from bank account

Question 13

The imprest system is a control system. At any point in time …

Answer 13

the total cash plus vouchers/receipts should equal the cash float

Question 14

Where are cash sales recorded?

Answer 14

They are recorded directly into the cash receipts book (NOT the sales day book as this is only for sales made on credit).

Question 15

What would typically be included as table headings in the sales day book?

Answer 15

Date of transaction, invoice number, name, and amount

Question 16

How are purchases made on credit recorded?

Answer 16

In the purchases day book - every invoice received is allocated a sequential number for internal reference purposes - this number is recorded along with name, date, amount etc.

Question 17

What is the Journal primarily made up of?

Answer 17

Adjustments that are made in preparation for year-end accounts e.g.,
year end inventory adjustments, recording bad debt write off adjustments, recording period end accruals and prepayments, recording period end depreciation.

Question 18

What accompanies most journal entries?

Answer 18

A brief description to allow the user to determine the nature of the transaction e.g., ‘the accrual of estimated electricity costs for the last quarter’.

Question 19

Where are the calculated totals for each accounting period transferred from and to?

Answer 19

Transferred from the books of prime entry to the nominal ledger (aka general ledger) using double entry.

Question 20

What is the nominal ledger?

Answer 20

it is effectively a summary of the financial affairs of a business - it is what is used to create financial statements.

Question 21

What does the nominal ledger contain?

Answer 21

It contains a separate ledger account for every asset, liability, source of income and expense - including sale, purchases, payables, receivables, cash and petty cash.