Chapter 1- The Accounting System Flashcards

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1
Q

What are financial transactions?

A

a money agreement between a buyer and seller to exchange an asset for payment.

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2
Q

Selling goods and services info

A
  • immediate payment= cash sales
  • cash can be payment made by credit/debit card as well as notes and coins
  • a payment at a later date is a credit sale
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3
Q

What is a credit sale?

A

A credit sale is a payment made at a later date.

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4
Q

Examples of purchases and expenses:

A
  • large and small transactions
  • settling purchase invoices
  • buying an item used in the business
  • buying fuel for delivery van
  • buying stamps for office using cash
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5
Q

Examples of payments in and out of the bank:

A
  • cash
  • cheques
  • electronic payments
  • settling company credit card by direct debit
  • paying weekly wages
  • drawing cash out for office
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6
Q

What does a business need to keep track off?

A
  • expenses and purchases
  • wages paid
  • what a customer owes and when
  • what is owed to suppliers and when
  • amount paid in and out of the bank
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7
Q

What are the 5 stages of the accounting system?

A
  1. Financial transactions
  2. Financial statements
  3. Books of prime entry
  4. Ledger accounts
  5. Trial balance
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8
Q

Examples of a financial transaction:

A
  • a sale
  • a purchase
  • a payment
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9
Q

Examples of financial documents:

A
  • an invoice
  • a credit note
  • petty cash voucher
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10
Q

What are the books of prime entry?

A
  • sales day book and sales returns day book
  • purchase day book and purchase returns day book
  • cash book
  • petty cash book
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11
Q

Sales Transactions

A

Sales Day Book and Sales Returns Day Book:

  • customer sales —>(debit & credit)
  • customer returns —> (debit & credit)
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12
Q

Purchase Transactions

A

Purchase Day Book and Purchase Returns Day Book:

  • purchases from suppliers —> (debit & credit)
  • returns to suppliers —> (debit & credit)
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13
Q

Cash and Bank Transactions

A

Cash Book:

-payments received and payments made —> (debit and credit)

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14
Q

Small Cash transactions

A

Petty Cash Book:

- small cash payments made and cash received —> (debit and credit)

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15
Q

Day Books

A
  • credit sales and sales returns which involve customers

- credit purchases and purchases returns which involve suppliers

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16
Q

Cash Books

A

-records payments into and out of the bank

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17
Q

Petty Cash Book

A

-records payments in and out of a cash float used for small payments and purchases

18
Q

What is a Ledger Account?

A

-the formal accounting record for financial transactions involving customers and suppliers and business assets, expenses, income, liabilities and capital

19
Q

What is a ledger?

A

-a book where business transactions are entered into individual accounts

20
Q

What is a sales ledger?

A

-customer individual accounts which contains sales made on credit, returned goods or payments received

21
Q

What is a purchase ledger?

A

-suppliers personal accounts which contains purchases made on credit, returned goods and payments made to suppliers

22
Q

What is a general ledger?

A
  • this ledger contains all other transactions made by the business such as assets, liabilities, owners capital, expenses items and income items
23
Q

What are assets?

A
  • items owned by a business

- e.g a delivery van

24
Q

What are liabilities?

A
  • items owed by a business

- e.g a bank loan

25
Q

What is capital?

A

-the investment made in a business by the owner(s)

26
Q

What is a control account?

A
  • a control account is contained in the general ledger and used for information about the financial state of a business
  • they summarise a number of other accounts
27
Q

Examples of control accounts:

A
  • sales ledger control account

- purchase ledger control account

28
Q

What is a sales ledger control account?

A
  • contains the total of all trade receivable (debtors) accounts in the sales ledger
  • shows how much all customers owe
29
Q

What is a purchases ledger control account?

A
  • contains the total of all trade payables (creditors) accounts in the purchase ledger
  • shows how much a business owes to its suppliers
30
Q

What is a trade receivable? (Debtor)

A

-a customer who owes a business money

31
Q

What is a trade payable? (Creditor)

A

-a supplier a business owes money to

32
Q

What is the trial balance?

A
  • a list of balances of the ledger accounts drawn up into 2 columns (debit and credit)
  • the totals should be the same
33
Q

What are the two financial statements?

A
  • statement of profit or loss

- statement of financial position

34
Q

What is a statement of profit or loss?

A
  • shows day to day business income received over a given period, shows expenses incurred, cost of production and running costs
  • equation: income minus expenses = profit
  • if income is > than expenses = profit
  • if income is < than expenses= loss
35
Q

What is a statement of financial position?

A
  • gives a snapshot of a business at a certain date and shows the value of owners investment
  • Accounting equation: Assets minus liabilities = Capital
36
Q

What is a financial document?

A
  • a term given to a doc which results from a financial transaction
  • for example an invoice
37
Q

What is a cash sale?

A

-a sale where a payment is made straightaway

38
Q

What are double-entry accounts?

A

-ledger accounts set up on the double- entry system (debit and a credit entry) are made for each transaction

39
Q

What is the ‘dual effect’?

A
  • every transaction will be recorded in two accounts
  • one account will be debited (receive value)
  • one account will be credited (give value)
40
Q

Debit

A
  • gains value
  • records an asset
  • records an expense
41
Q

Credit

A
  • gives value
  • records a liability
  • records an income item
42
Q

In and Out rule

A
  • In= Left= Debit

- Out= Right= Credit