Chap 2 Accounting Information System Flashcards
What is a business transaction?
It is an activity carried out by the business to provide goods and services in exchange for money
Name some examples of business transactions?
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
What is a source document?
It captures information about a business transaction. Information noted down are the date, a description of the transaction, the value and the parties involved.
Why are source documents important?
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
What are examples of source documents?
Invoice Credit note Debit note Receipt Cash register slip Remittance advice Payment voucher receipt Bank statement
What is the purpose of a invoice?
When the seller sells goods and services to the buyer on credit. the seller will issue an invoice to the buyer.
What is the purpose of a credit note?
If the buyer returns good after the credit sales, the seller will issue a credit note
What is the purpose of a debit note?
If the seller finds that there is an undercharge after the credit sales, the seller will issue a debit note to the buyer
What is the purpose of a receipt?
When the seller sells goods and services to the buyer and collects money immediately, the seller will issue a receipt to the buyer
What is the purpose of a cash register slip?
It is a receipt issued from a cash register which is commonly used in retail outlets
What is the purpose of a remittance advice?
When the buyer pays for credit purchases, the business will prepare a payment voucher and a cheque
What is the purpose of a payment voucher receipt?
The payment voucher has a remittance advice which states the invoice number and amount paid
What is the purpose of a bank statement?
The bank will issue a weekly or monthly statement and states the deposits and payments made from the bank account
What is a journal?
All business transactions are recorded in a journal
What are the types of journals?
Special journals
Cash Book
General Journal
What are the types of special journals?
Purchase journal
Purchase returns journal
Sales journal
Sales returns journal
What is the purpose of the cash book?
To record all cash and cheques received and paid
What is the purpose of the General Journal?
To record all other transactions not recorded in the special journals and cash book
How are transactions recorded in the General Journal?
It is recorded in chronological order. and it includes the date, a narration (brief description) and the amount
What is a ledger?
It keeps the business transactions of journals group by accounts
What are the types of ledgers?
General Ledger
Subsidiary - Trade Receivables Ledger
Subsidiary - Trade Payables Ledger
What is the purpose of the General Ledger?
This consist of all the ledger accounts, but excludes the individual trade receivables and individual trade payable ledger accounts
What is the purpose of the Trade Receivables Ledger?
This consist of all the individual trade receivable ledger accounts
What is the purpose of the Trade Payable Ledger?
This consist of all the individual trade payable ledger accounts
What is the Trail Balance?
It is a summary of the balances of each ledger account in the General Ledger as at a specified date
What comprises of the financial report?
Income statement
Balance Sheet
What is an income statement?
It is a financial statement that shows how much income, expenses, and profit or loss a company has over a period of time.
What is a Balance Sheet?
It is a financial statement that lists the assets, liabilities and equity of a business at a given point of time.
What is the process of the accounting cycle?
Identifying and recording phase
Adjusting phase
Reporting phase
Closing phase
What is the identifying and recording phase?
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
What is the adjusting phase?
The business checks that it has recorded all the transactions, and the Trail balance is usually prepared in this phase.
What is the reporting phase?
The financial reports are prepared.
The reports must be prepared at least once in a financial year
What is the closing phase?
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
