Ch 2 Flashcards
What is the main difference between a cash transaction and a credit transaction?
A cash transaction changes hands immediately, whereas a credit transaction changes hands after the initial sale/purchase takes place.
Define account payable.
A person from whom a business has purchased items and to whom it owes money.
Define account receivable.
A person to whom the business has sold items and by whom it is owed money.
What is double entry bookkeeping?
A system of accounting which reflects that every financial transaction gives rise to two equal accounting entries, a debit and a credit.
Complete the entry: Debit ______, Credit Sales.
Cash
Complete the entry: Debit Purchases, Credit ______.
Payables account
What is capital expenditure?
Expenditure that results in an increase in non-current assets.
What is revenue expenditure?
Trading expenditure or expenditure in maintaining non-current assets, impacting profit or loss for the accounting period.
List three topics covered in Chapter 2.
- Recording business transactions
- The general (nominal) ledger
- Accounting for sales tax
What are the characteristics of accounting data?
The properties and sources of accounting data records that meet business requirements.
What is the purpose of books of prime entry?
To record initial business transactions in a structured format.
How do transactions enter the books of prime entry?
Transactions are recorded in the books of prime entry based on their nature and source documentation.
What is the accounting equation?
Assets = Capital + Liabilities.
What are drawings in accounting?
Amounts of money taken out of a business by its owner, reducing capital.
True or False: An asset is something valuable which a business owes.
False
True or False: A liability is something which is owed to someone else.
True
What is the effect of sales tax on accounting transactions?
Sales tax must be considered when entering transactions into the books of prime entry.
Complete the entry: Maintain a cash book by recording transactions including any ______ effect.
sales tax
What is the relationship between assets and liabilities?
Assets are owned by a business, while liabilities are obligations owed to others.
