Chapter 1 Flashcards
What is the aim of this unit?
Understand how to set up bookkeeping system
Process cust trans, supplier trans, receipts and payments, trans into ledger acc
What do business docs include?
Petty cash vouchers, invoice, credit note, remittance advice, statement of account, bank statement
How many examples of business docs are there?
6
Example of books of prime entry?
Sales daybook, sales returns daybook, purchases daybook, purchases returns daybook, discounts allowed daybook, discounts receive day book
What is the purpose of accounting?
To record and classify business transactions
What are the different transactions a business may undertake?
Cash sales, cash purchases, credit sales, credit purchases, other expenses paid from the bank of by cash, paying cash into the bank, withdrawing cash from the bank and owners drawings.
What does the name of the transaction or document depend on?
Whether we are looking at it from the POV of the seller or purchaser
Example of a trans changing due to POV
Seller will call it a ‘sales invoice’ but buyer will call it a ‘purchase invoice’
If the seller makes a sale and the purchases makes a purchase, is this the same trans?
Yes
What type of business trans are there?
Credit sales, credit purchases, cash sales, cash purchases, drawings, withdrawing from bank
Where is the trans entered after being recorded?
Entered into an accounting system
What environment is a cash sale usually made in?
A retail environment
What is given to customer after a trans in completed?
A receipt
What completes a cash sale or purchase?
A receipt
Who initiates a credit sale or purchase?
A seller receiving an order from customer
How can the PO be made from the cust?
Via writing, phone, email or website
What is the first decision to be made after a credit purchase request?
Whether to allow the customer credit for the sale
What does offering credit to a customer invoice risk?
The goods are delivered with the promise of payment in the future
What is the decision process for a credit sale dependant on?
Whether it’s a new or existing customer
What checked should be made for existing credit customer?
Checks should be made to ensure that the new sale when added to the amount currently owing, does not take the customer over their credit limit.
What is another check important for existing customers wanting credit?
There have been no problems recently with receiving payments from the customer
What would be normal practise for a new customer wanting credit?
Customer needs to supply trade references; names of other businesses that they trade with on credit that can vouch for their creditworthiness.
How else can you check a new customers creditworthiness?
Through an agency, or references from the customers bank.
How can a business ensure they keep track of all sales, purchases and expenses?
The trans are recorded in an accounting system
What is an overview of the accounting system?
Business trans
Business docs
Books of prime entry
Ledger accounts
Trail balance
What is a business trans?
A credit sales, credit purchases, a cash sale, cash purchase, expenses paid from bank or with cash, drawings
Example of a business document
Invoice
What will be entered into the books or prime entry?
Details from the business doc (invoice)
What happens when a trans is recorded in the book or prime entry?
It is transferred into the ledger accounts regularly.
What are ledger accounts used for?
As part of the double entry accounting system.
What is a trail balance?
A list of all the ledger accounts in the accounting system
What is the trail balance used for?
As a control to check all transactions have been recorded correctly in the double entry system prior to preparation of the financial statements.
