Basic Structure of the Accounting System

Question 1

The 5 Stage Accounting System

Answer 1

1. Financial Transactions
2. Financial Documents
3. Books of Prime Entry
4. Ledger Accounts
5. Trial Balance

Question 2

Financial Transaction

Answer 2

the originating transaction, eg a sale, a purchase, a payment

Question 3

Financial Document

Answer 3

documents generated by the transaction, eg an invoice, a credit note

Question 4

Day book

Answer 4

a book of prime entry listing the details of various financial transactions (sales, sales returns, purchases, purchases returns and discounts)

Question 5

Cash book

Answer 5

the book of prime entry which lists payments in and out of the bank account

Question 6

Petty cash book

Answer 6

the book of prime entry which lists small cash business expense payments from an office cash fund

Question 7

Books of prime entry

Answer 7

the place in the books of a business where a financial transaction is recorded for the first time

Question 8

Ledger Accounts

Answer 8

the formal accounting record for financial transactions involving individuals and business assets, expenses, income, liabilities and capital

Question 9

Trial Balance

Answer 9

a list of the balances of the ledger accounts drawn up in 2 columns (debit and credit) the totals of which should be the same

Question 10

Credit

Answer 10

an entry recording money that has been received

Question 11

Debit

Answer 11

an entry recording money that is owed

Question 12

Double-entry accounts

Answer 12

ledger accounts set up on the double entry system (a debit and a credit)

Question 13

Cash and Credit Sale

Answer 13

a cash sale is a payment made straightaway; a credit sale is where a payment is made at a later date

Question 14

Invoice

Answer 14

a document that records a transaction between a buyer and a seller

Question 15

Credit note

Answer 15

credit that has been added to the customers account for goods returned