Business documents Flashcards
What is the purpose of accounting?
To record and classify business transactions.
List 8 types of business transactions.
Credit sales Cash sales Credit purchases Cash purchases Paying cash into the bank Withdrawing cash from the bank Owners drawings Other expenses either paid from the bank or with cash
What is the purpose of business documents?
To record the financial transactions undertaken by a business so that they can be recorded into an accounting system
List the three types of discount and describe what they are used for
Trade discount- to encourage customer loyalty
Bulk discount- for sales orders above a certain quantity
Prompt payment- to encourage early payment of invoices
What is a code
A system of numbers, letters and symbols assigned to a classified set of items in order to give a brief accurate reference.
Why are coding systems used in accounting (2 reasons)
To find information quickly
To file similar documents together
What are owners drawings
Money that the company’s owner has withdrawn from the business for personal use.
What is the difference between cash and credit purchases?
Cash: customer offers payment immediately and in full before taking goods
Credit: customer takes goods / services and agrees to pay at a later date
What is credit?
The amount of time a customer can take before paying for goods / services
List 5 ways that a purchase order can be made
Telephone
In writing
Fax
Website
List 3 ways to check a customers creditworthiness
Trade references
References from their bank
Credit checking agencies
List the 5 steps in an accounting system
Business transaction
Business documents
Books of prime entry
Ledger accounts
Trial balance
What are books of prime entry?
Where transactions and details from business documents are first recorded (also called day books).
List 5 types of business documents
Price quotation
Purchase order
Sales order
Delivery note
Sales invoice
What is a trial balance
A list of all the ledger accounts in the accounting system. Used as a control to check that transactions have been recorded properly.
List the 6 main steps for a credit transaction
Price enquiry
Price quotation
Purchase order
Sales order
Delivery note
Sales invoice
(Credit note)
Define purchase order
A buyer generated document that authorises a purchase transaction
List 6 things that should be present on a quotation
Supplier name & address & contact details
Customer name & address
Today’s date
Details of goods
Price being quoted
Authorisation signature
What 3 things should be checked when making a purchase order
The price is as quoted
Delivery terms
Any discounts applicable
List 6 things that should be on a purchase order
Name and address of customer
Name and address of supplier
Order date
Sequential order number
Vat reg number of business placing the order
Authorisation signature
Define sales order
A seller generated document that authorises a sale to a customer.
Issued after the receipt of a purchase order.
List 4 things that a sales order confirms.
Quantity / type of goods or service
Date of supply
Delivery address
Price & payment terms (& discounts available)
Describe the 3 parts of a delivery note
1- kept by the customer (to compare to the purchase order & sales invoice)
2- signed and returned to the supplier (evidence that the goods have been received in good condition)
3- signed and kept by the delivery organisation (evidence that they have delivered the items in good condition)
Define delivery note
A document accompanying goods despatched to a customer. Explains what the delivery contains.
Define goods received note.
An internal document completed by the purchaser that records the details of goods received.
Why doesn’t the delivery note contain pricing details?
So that it is not confused with an invoice.
Does a price quotation usually include or exclude VAT? Why?
Exclude VAT.
This is the true selling price of the business.
Define sales invoice
A document that itemises a transaction between a buyer and a seller.
A request for the buyer to pay for goods or services.
Define VAT
Sales tax.
Consumption tax added to a products selling price.
Represents a tax on the value added to a product at each stage of the production/supply process.
What is the standard rate of VAT?
20%
What does HMRC stand for?
Her majestys revenue and customs
Define input tax.
Tax paid on the purchase of goods and services.
Define output tax
Tax charged on the sale of goods and services
Give an example of a non-taxable person
The private customer
Give 5 examples of goods & services that are tax exempt
Certain land and buildings
Insurance
Post office postal services
Admission to museums/ galleries etc.
Betting, gambling & lotteries
Give 4 examples of zero rated taxable supplies
Water and food (NOT hot food or dining in)
Books and newspapers
Drugs and medicines
Children’s clothing and footwear
What is the difference between tax exempt and zero rated tax?
Businesses can reclaim input tax for zero rated items but cannot for tax exempt items.
Give 2 examples of food at is not zero rated
Hot food
Food that is eaten in restaurants / cafes (places with service)
Give 2 examples of non tax deductible items
Motor cars
Business entertaining
What is the tax rate on domestic fuel and power?
5%
Define taxable person
Any individual, partnership or company who intends to make taxable supplies and is liable to register.
(Liable to register if their taxable supplies exceed a specified amount over a 12 month period)
What is the difference between net and gross totals?
Net= excludes VAT
GROSS= Includes VAT
Is VAT rounded up or down to the nearest penny?
Down
Give 2 other names for a prompt payment discount
Settlement discount
Cash discount
What does E&O E stand for?
Errors and omissions expected.
Seller is claiming the right to correct any genuine errors at a later date.
What does carriage paid mean?
The invoice value includes delivery of goods to the customers premises.
What does ex works mean?
Prices quoted do not include delivery to the customers premises. The customer must organise and pay for the delivery of goods separately.
What does cash on delivery mean?
The customer is expected to pay for the goods when they are delivered.
Define credit note
Document issued by a supplier to a customer cancelling part or all of a sales invoice.
Give 4 examples of when a credit note would be given
When a customer has received faulty or damaged goods
When a customer has returned undamaged goods for a refund
To settle a dispute with a customer
To adjust an account after taking advantage of a prompt payment discount
Define ledger code
A unique reference given to different types of income, expenses, assets and liabilities.
Also called a general ledger (GL) code or nominal code.
Define customer account code
Unique reference given to each individual customer of an organisation.
Define supplier account code
Unique reference given to each individual supplier of an organisation.
Define product code.
Unique reference given to each type of product of an organisation.
Define alphabetical code
Code consisting of letters
Define numerical code
Code consisting of numbers. Can be in ascending or descending order
Define alphanumerical code
Code consisting of letters and numbers
List 5 types of code
Sequence codes
Block codes
Significant digit codes
Faceted codes
Decimal (hierarchical) codes
What is a ledger code
A unique reference given to different types of income, expenses, assets and liabilities.
Also referred to as a general ledger code or nominal code.
What is a customer account code?
A unique reference given to each individual customer
What is a supplier account code?
A unique reference given to each individual supplier
What is a product code?
A unique reference given to each individual product within an organisation
What are journals used for?
Recording any errors or adjustments.
