Chapter 10 - Account System and VAT

Question 1

What are source documents?

Answer 1

Documents that feature in an accounting system

Question 2

What are the two types of source documents

Answer 2

• Sales Cycle
• Purchase

Question 3

What are the source documents in a sales cycle?

Answer 3

1. Sales order: Received from customers, dealing with detailing goods required
2. Goods delivery note: Goods sent to customer together
3. Sales invoice: Sent to customer as request for payment
4. Credit note: issued if customer is overcharged or if the goods returned

Question 4

What are the source documents in a purchase cycle

Answer 4

• Goods received note completed: Goods received
• Purchase invoice: Received from supplier and matched to GRN
• Debit note: Issued in order to request credit note from supplier

Question 5

What is a Nominal ledger?

Answer 5

Produce a trial balance and then a financial statement for a business

Question 6

What does the nominal ledger contain?

Answer 6

Income
Expense
Asset
Liability
Capital balance

Question 7

What is contained in a receivables ledger?

Answer 7

Each credit customer so the business can chase late payments

Question 8

What does the payables ledger contain?

Answer 8

Separate ledger account for each credit supplier, allowing the business to ensure that they make payments to suppliers within agreed credit terms

Question 9

What are examples of input for computerised accounting system

Answer 9

Source documents
Standing data

Question 10

What are examples of Accounting system processes for computerised accounting system

Answer 10

• Calculations
• Ledgers
• Journal entries
• Record keeping

Question 11

What are examples of outputs for computerised accounting system

Answer 11

• Trial balance
• Reports

Question 12

What are inputs

Answer 12

• These documents trigger an accounting entry of an invoice to a customer
• Standing data (Master file data) reference data that does not regularly change such as the name and registered address of the business, credit limits, VAT registration number

Question 13

What is real time processing?

Answer 13

Transactions are processed by the system as they are input

Question 14

What are batch processing?

Answer 14

Processed later in one go

Question 15

What is record keeping?

Answer 15

Records are maintained within T-Accounts. In electronic accounting system a ledger will be created and updated for each of these T accounts

Question 16

What are journal entries?

Answer 16

Journal entry is simply a double entry entered into a system

Question 17

What are the steps of electronic banking

Answer 17

1. Data on transaction report uploaded on computerised accounting system
2. Accounting system attempts to match transactions
3. ‘Known’ transactions are automatically recorded
4. ‘Unknown transactions’ are recorded in temporary account known as ‘suspense account’ will be reported on an exception report, to be investigated by the accountant
5. Once identified suspense account is removed and transactions are recorded within the correct accounting period

Question 18

What is petty cash?

Answer 18

Cash reserved for occasional odd items of expense. The cash is usually accounted for separately in a petty cash book

Question 19

What is the imprest system?

Answer 19

1. Business decides on the amount of cash to be held as ‘float’ and withdraws from the bank. THIS IS KNOWN AS PETTY CASH FLOAT
2. Payments are made from the float, these are recorded in the petty cash book. All expenditure must be evidenced by an expense receipt which is attached to an expense voucher
3. When the petty cash runs low, a cheque drawn to return the petty cash to the exact amount of the float. At this stage expense vouchers should be produced to the cheque signatory. The total of these will equal the cheque required.

Question 20

Therefore, at any stage

Answer 20

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

Question 21

What is the petty cash book?

Answer 21

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

Question 22

What are journal entries?

Answer 22

Way of presenting accounting double entry of transactions

Question 23

What is value added tax?

Answer 23

• VAT is a form of indirect taxation
• A business registered VAT collects the tax on behalf of HMRC
• Output tax is charged on sales
• Input tax is paid on purchases and may be reclaimed
• If output tax exceeds input tax, the business periodically pays the excess to HMRC
• If input tax exceeds output tax, the business periodically reclaims the excess from HMRC

Question 24

What are the double entries for VAT on sales?

Answer 24

Dr Receivable Amounts
Cr Sales
Cr VAT

Question 25

What are the double entries for VAT on purchases/expenses?

Answer 25

Dr Purchases/expenses
Dr VAT account
Cr Payable account \

Question 26

What are blocked items of VAT

Answer 26

• Purchase of motor cars
• Client entertaining expenses

Question 27

How is VAT calculated on prompt payment discounts?

Answer 27

VAT initially calculated on the full sales prices.

If customer pays within discount period then VAT is adjusted

Can issue a credit note