Chapter 10

Question 1

sales cycle

Answer 1

sales order from customer detailing goods required

goods sent to customer together with goods delivery notes (GDN)

sales invoice sent to customer as request for payment

credit note issued if customer overcharged or goods returned

Question 2

purchase cycle

Answer 2

purchase order sent to the supplier fro request of goods

goods received - GRN completed

purchase invoice received from supplier and matched to GRN

debit note may be issues in order to request credit note from supplier

Question 3

What entries are made in the sales and purchase cycle?

Answer 3

only invoices and credit notes actually result in entries to the trade receivables and payable ledger accounts

Question 4

What is a nominal ledger?

Answer 4

used to produce a trail balance and from this, a financial statement for the business

Question 5

What does a nominal ledger contain?

Answer 5

separate ledger account for each type of income, expense, asset, liability or capital balance

Question 6

What is a receivables ledger?

Answer 6

it contains a separate ledger account for each credit customer

Question 7

What does a receivables ledger allow?

Answer 7

allowing the business to manage outstanding receivable balances and chase late payments

Question 8

What should the total of all receivables accounts equal the balance to?

Answer 8

it should equal to the balance in the nominal ledger for trade receivables

Question 9

What does the payable ledger contain?

Answer 9

a separate ledger account for each credit supplier allowing business to ensure that they make payments to suppliers within agreed credit terms

Question 10

What should the total of all payable accounts equal the balance to?

Answer 10

it should equal the balance in the nominal ledger for trade payables

Question 11

two examples of other modules that we might find in the accounting system

Answer 11

recording and processing payroll

maintaining a record of a non-current asset in the non-current asset register

Question 12

inputs

Answer 12

source documents

standing data

Question 13

source documents

Answer 13

documents that will trigger an accounting entry such as the generation of invoice to a customer

Question 14

standing data

Answer 14

reference data that does not regularly change, such as name and registered address of the business, credit limited, VAT registration number and relevant VAT rates, employee PAYE tax coding etc.

Question 15

accounting system processes

Answer 15

calculations

ledgers

journal entries

record keeping

Question 16

outputs

Answer 16

trail balances

reports

Question 17

the processing of transactions in the computerised accounting system

Answer 17

inputs

accounting system processes

outputs

Question 18

processes

Answer 18

transactions that are undertaken by business needs to be entered into the system

calculations

ledgers

record keeping

journal enteries

Question 19

Process - transaction processing types

Answer 19

real time
batch

Question 20

real time processing

Answer 20

means that the transaction are processed by the system as they are input

Question 21

batch processing

Answer 21

means that transactions are input into the system and processed later in one go

Question 22

Processes - Calculations

Answer 22

standing data can be used
for example
to calculate VAT payables on an invoice

Question 23

Processes - Ledgers

Answer 23

this term was originally used to describe a physical book where accounting data was stored

it now refers to a record but it might help to imagine that these are separate physical records held within the electronic system

Question 24

Processes - Record Keeping

Answer 24

records maintained within t-accounts

in electronic accounting system a ledger will be created and updated for each of these t accounts

Question 25

Processes - journal entries

Answer 25

a journal entry is simply a double entry entered into the system

Question 26

Outputs - trail balances

Answer 26

from earlier studies, we were all failure with extracting a trail balance from a nominal ledger

this will now occur automatically on request and can be extracted at any point

Question 27

Outputs - reports

Answer 27

an electronic system is able to generate a variety of reports.

some of these are standard, such as an ages receivable report showing how old a debt is

however some systems allow bespoke reports to be created on anything of interest to the managers, such as a list of all transactions above a certain amount

Question 28

Process of Electronic Banking

Answer 28

transaction report data is uploaded to computerised accounting system

accounting system attempts to math transactions and process these approriately

Question 29

What happens when a known transaction is put though the electronic banking system?

Answer 29

automatically recorded

Question 30

What happens when an unknown transaction is put though the electronic banking system?

Answer 30

recorded in a temporary account known as a suspense account and will be reported on exception report
- will be investigated by the accountant

once identified, the suspense account will be removed and the transaction will be recorded in correct account within the accounting system

Question 31

What is petty cash?

Answer 31

some cash in notes and coins usually kept on the business premise to make occasional payments for odd items of expense.

this cash is accounted for in the petty cash book

Question 32

Float =?

Answer 32

cash in petty box + sum of total of expense vouchers since last reimbursement

Question 33

What is the petty cash book?

Answer 33

details the amount paid into petty cash from the bank as well as analysing the nature of each item of expenditure

Question 34

How are adjustment to initial trail balance often shown?

Answer 34

in a columnar format with the columns for

initial trail balance

journals

final trail balances
- used to create financial statements

Question 35

What are the steps required to adjust a trail balance?

Answer 35

extract trail balance from ledger accounts

enter the journals in adjustment column

add across the debts and credits for each item and enter into the final trail balance

Question 36

VAT meaning

Answer 36

value added tax

Question 37

What is VAT?

Answer 37

form of indirect taxation

Question 38

How is VAT charged?

Answer 38

output is charged on sales

input tax is paid on purchases and maybe reclaimed

Question 39

VAT - What happens if output tax exceeds input tax?

Answer 39

the business periodically pays the excess to HMRC

Question 40

VAT - What happens if input tax exceeds output tax?

Answer 40

business periodically reclaims from HMRC

Question 41

What’s the standard rate for vat?

Answer 41

20%

Question 42

What is the net selling price?

Answer 42

amount that the business wishes to achieve - without vat price essentially

Question 43

What is the gross selling price?

Answer 43

price charged to customers - its the net selling price + VAT

Question 44

What does VAT registered business need?

Answer 44

a VAT ledger account

this may be a receivable or a payable account depending on the circumstances

Question 45

Double entries for VAT on sales

Answer 45

Dr
Receivables account
VAT inclusive price

Cr
Sales
VAT exclusive amount

Cr
VAT account

Question 46

Double entries for VAT on purchase/expenses

Answer 46

Dr
Purchase/expenses
VAT exclusive amount

Dr
VAT account

Cr
Payable account
VAT inclusive amount