Business Transactions Flashcards
What is the purpose of accounting?
To record and classify business transactions.
What are the different transactions a business may undertake?
Credit sales, cash sales, credit purchase, credit sales, other expenses paid from the bank or by cash, paying cash into the bank, withdrawing cash from the bank and owners drawings.
Why does the name of a trans or doc depend on?
Depends on POV, a ‘sales invoice’ for the seller would be a ‘purchase invoice’ for the purchaser.
What happens with transactions?
They are recorded on different business documents and are entered into an accounting system.
What requires more accounting knowledge to process?
Credit sales
Where will a cash sale or purchase normally be made?
In a retail environment
What completes a cash sale or purchase?
A receipt.
Who initials the sale or purchase process for a credit sale?
Normally initiated by a seller receiving an order from a customer.
How will a customer make a purchase order for a credit purchase?
Writing, over the phone, email, or via a website
What’s the first decision to be made after a purchase order is recieved for a credit sale?
Whether to allow the customer credit for this sale
What is selling goods to customer on credit a risk?
The goods are delivered with the promise of payment in the future.
What should you check when an existing credit customer wishes to make further purchases?
Basic checks, a credit limit previously set should not be exceeded
What checks to an existing credit customer should be made for a new sale?
When added to the amount they currently owe. It does not take the customer over their credit limit. & no problems recently receiving payment from the customer.
What is the practise of a new customer asks for credit?
Ask the customer for some trade references, and names of other businesses they have credit with that can vouch for them.
What is an extra check for a new credit customer?
Check their credit worthiness through an agency, or references from the customers bank.
What happens for a new credit customer when they get approved?
A credit limit will be set for the customer and the sale can go ahead.
How does a business keep track of all sales earned, purchases, and expenses incurred?
The transactions are recorded in an accounting system.
What is the overview of the accounting system?
Business transaction
Business document
Books of prime entry
Ledger accounts
Trail balance
What happens when a business trans has taken place?
A business document will be produced eg. An invoice
Where does the transaction and details from the business get entered?
Into the books of prime entry
Are there several books of prime entry?
Yes
What is a trail balance?
Is a list of all the ledger accounts in the accounting system
What is a trail balance used for?
Used as a control to check that transactions have been recorded correctly in the double entry system prior to the preparation of the financial statements
