Chap 2 Accounting Information System

Question 1

What is a business transaction?

Answer 1

It is an activity carried out by the business to provide goods and services in exchange for money

Question 2

Name some examples of business transactions?

Answer 2

Purchase of candies from suppliers
Sales of candies to customers
Purchase of display shelves
Payments to suppliers
Reciepts from customers
Payment of salaries to employees
Payments for rental and utilities

Question 3

What is a source document?

Answer 3

It captures information about a business transaction. Information noted down are the date, a description of the transaction, the value and the parties involved.

Question 4

Why are source documents important?

Answer 4

It is proof that the transaction took place
It ensures that the transactions will be accurately recorded
Both parties will have copies and hence they are clear about the transactions

Question 5

What are examples of source documents?

Answer 5

Invoice
Credit note
Debit note
Receipt
Cash register slip
Remittance advice
Payment voucher receipt
Bank statement

Question 6

What is the purpose of a invoice?

Answer 6

When the seller sells goods and services to the buyer on credit. the seller will issue an invoice to the buyer.

Question 7

What is the purpose of a credit note?

Answer 7

If the buyer returns good after the credit sales, the seller will issue a credit note

Question 8

What is the purpose of a debit note?

Answer 8

If the seller finds that there is an undercharge after the credit sales, the seller will issue a debit note to the buyer

Question 9

What is the purpose of a receipt?

Answer 9

When the seller sells goods and services to the buyer and collects money immediately, the seller will issue a receipt to the buyer

Question 10

What is the purpose of a cash register slip?

Answer 10

It is a receipt issued from a cash register which is commonly used in retail outlets

Question 11

What is the purpose of a remittance advice?

Answer 11

When the buyer pays for credit purchases, the business will prepare a payment voucher and a cheque

Question 12

What is the purpose of a payment voucher receipt?

Answer 12

The payment voucher has a remittance advice which states the invoice number and amount paid

Question 13

What is the purpose of a bank statement?

Answer 13

The bank will issue a weekly or monthly statement and states the deposits and payments made from the bank account

Question 14

What is a journal?

Answer 14

All business transactions are recorded in a journal

Question 15

What are the types of journals?

Answer 15

Special journals
Cash Book
General Journal

Question 16

What are the types of special journals?

Answer 16

Purchase journal
Purchase returns journal
Sales journal
Sales returns journal

Question 17

What is the purpose of the cash book?

Answer 17

To record all cash and cheques received and paid

Question 18

What is the purpose of the General Journal?

Answer 18

To record all other transactions not recorded in the special journals and cash book

Question 19

How are transactions recorded in the General Journal?

Answer 19

It is recorded in chronological order. and it includes the date, a narration (brief description) and the amount

Question 20

What is a ledger?

Answer 20

It keeps the business transactions of journals group by accounts

Question 21

What are the types of ledgers?

Answer 21

General Ledger
Subsidiary - Trade Receivables Ledger
Subsidiary - Trade Payables Ledger

Question 22

What is the purpose of the General Ledger?

Answer 22

This consist of all the ledger accounts, but excludes the individual trade receivables and individual trade payable ledger accounts

Question 23

What is the purpose of the Trade Receivables Ledger?

Answer 23

This consist of all the individual trade receivable ledger accounts

Question 24

What is the purpose of the Trade Payable Ledger?

Answer 24

This consist of all the individual trade payable ledger accounts

Question 25

What is the Trail Balance?

Answer 25

It is a summary of the balances of each ledger account in the General Ledger as at a specified date

Question 26

What comprises of the financial report?

Answer 26

Income statement

Balance Sheet

Question 27

What is an income statement?

Answer 27

It is a financial statement that shows how much income, expenses, and profit or loss a company has over a period of time.

Question 28

What is a Balance Sheet?

Answer 28

It is a financial statement that lists the assets, liabilities and equity of a business at a given point of time.

Question 29

What is the process of the accounting cycle?

Answer 29

Identifying and recording phase
Adjusting phase
Reporting phase
Closing phase

Question 30

What is the identifying and recording phase?

Answer 30

Source documents are sorted and the transactions recorded in the journals.
The entries in the journals are then posted to the ledgers.
These activities happen every day

Question 31

What is the adjusting phase?

Answer 31

The business checks that it has recorded all the transactions, and the Trail balance is usually prepared in this phase.

Question 32

What is the reporting phase?

Answer 32

The financial reports are prepared.

The reports must be prepared at least once in a financial year

Question 33

What is the closing phase?

Answer 33

The accounting information system is prepared for the next financial year
Closing is carried out at the end of the financial year, after which no transactions should be recorded