Chapter 1 - The Accounting System

Question 1

Why is accounting important ?

Answer 1

Accounting is essential to the recording and presentation of financial records and financial statements.

Question 2

What does accounting help with ?

Answer 2

• internal control
• measuring business performance
• obtaining crediting/financing
• statutory requirements

Question 3

What is the roll of an accountant ?

Answer 3

The accountants job is to check, summarise, present, analyse and interpret the accounts for the benefit of the owner of the business they work for

Question 4

How are financial records kept / stored ?

Answer 4

They can be stored either:

1) physically (on paper, in filing cabinets ect)
2) digitally on financial accounting systems

Question 5

Ways of keeping/storing financial records

What sort of software may a smaller business use to keep financial records ?

Answer 5

Spreadsheet templates

Question 6

Ways of keeping/storing financial records

What sort of software may a small - medium business use to keep financial records ?

Answer 6

Online tools such as apps and cloud based software

Question 7

Ways of keeping/storing financial records

What sort of software may a larger business use to keep financial records ?

Answer 7

Desktop finance software

Question 8

In a hand written system what would the main record be ?

Answer 8

The ledger

Question 9

What is a major advantage of a business using a digital accounting system ?

Answer 9

It is a very accurate method of recording business transactions

Question 10

When maintaining financial accounts, an accountant should make sure they are……

Answer 10

• accurate
• kept with integrity
• up to date
• physically secure
• kept with confidentiality

Question 11

Financial Documents

When a business is buying or selling goods what financial document should be produced ?

Answer 11

An invoice

Question 12

Financial Documents

What should be stated on an invoice ?

Answer 12

• the amount owing
• the date it should be paid
• details of the goods sold or the service provided

Question 13

A cash sale and purchase means that the payment is received ……..

Answer 13

Straight away

Question 14

A credit sale and purchase means that the payment is received ……..

Answer 14

At a later date ( usually 30 days later )

Question 15

What is a trade receivable ?

Answer 15

Is a person / business that owes you money when you sell on credit

Question 16

What is a trade payable ?

Answer 16

A person / business that you owe money to when you buy on credit

Question 17

What is revenue / sales revenue ?

Answer 17

The total of sales, both cash and credit for a particular time period

Question 18

What are some examples of financial documents ?

Answer 18

• invoices
• credit notes
• bank paying-in slips
• cheques
• BACS and Faster payment documents

Question 19

What are some examples of Books of prime entry ?

Answer 19

• day books
• journal
• cash books

Question 20

If a buyer returns goods that were sold on credit what financial document will be produced by the seller ?

Answer 20

A credit note

Question 21

What is double entry book keeping ?

Answer 21

It is where two entries are made for each transaction one entry being a credit and the other being a debit

Question 22

How do businesses keep record of inventory ?

Answer 22

They either do using accounting software or manually on individual inventory records

Note - Under both methods a separate record is maintained for each type of inventory

Question 23

W hat is the trial balance used for ?

Answer 23

The trial balance is used to highlight any possible mistakes made when doing double entry accounting