chapter 2

Question 1

cash transactions

Answer 1

payment is made immediately during a cash sale or purchase

Question 2

credit transactions

Answer 2

payment is postponed or delayed during a credit sale or purchase

Question 3

accounting information system

Answer 3

it is a system that a business uses to collect, store and process accounting data.

Question 4

invoice

Answer 4

credit customers of the amount owed on credit

Question 5

receipt

Answer 5

bought/sold goods paid by cash

Question 6

bank statement

Answer 6

credit customer paid by cheque

Question 7

remittance advice and payment voucher

Answer 7

process payment to credit suppliers

Question 8

debit note and credit note

Answer 8

ducor

Question 9

define assets

Answer 9

resources a business owns or controls that are expected to provide future benefits

Question 10

define liabilities

Answer 10

obligations owed by a business to others that are expected to be settled in the future

Question 11

define equity

Answer 11

claim by the owners on the net asset of a business

Question 12

define income

Answer 12

amounts earned from the activities of a business

Question 13

define expenses

Answer 13

costs incurred to earn income in the same accounting period

Question 14

basic accounting equation

Answer 14

total assets = total liabilities + total owners equity

Question 15

expanded accounting equation

Answer 15

total assets = total liabilities + total owners equity - ( income - expense) - drawings

Question 16

why cheque was dishonoured

Answer 16

cheque has expired / post dated

Question 17

4 internal controls over cash

Answer 17

1) custody of cash
2) authorisation
3) bank reconciliation
4) segregation of duties

Question 18

custody of cash

Answer 18

secure cash and cheques in a locked storage

Question 19

authorisation

Answer 19

obtain proper approvals for all payments from authorised personels.

Question 20

bank reconciliation

Answer 20

compare bank records with the business records to identify items that causes differences

Question 21

segregation of duties

Answer 21

separate cash handling and cash recording duties among different employees

Question 22

explain the purpose of internal controls in a business

Answer 22

1. safeguard assets of business
2. ensures business transactions
3. comply with laws and regulations

Question 23

purpose of bank reconciliation

Answer 23

1. to deter fraud
2. to identify any errors in the cash at bank statement

Question 24

define trade receivables

Answer 24

amount owed by customers who buy goods and services from business on credit

Question 25

define allowance for impairment of trade receivables

Answer 25

it is the estimated amount of debts likely to be uncollectible.

Question 26

accrual basis of accounting theory

Answer 26

business activities that have occurred , regardless of whether cash is paid or received should be recorded in the relevant accounting period.

Question 27

prudence theory on trade receivables

Answer 27

expected loss on trade receivables should be written off , so that assets and profits will not be overstated

Question 28

prudence theory on inventory

Answer 28

based on prudence theory, inventory was valued at lower of cost and net realisable value so that assets and profits will not be overstated.

Question 29

impairment loss on trade receivables

Answer 29

change in allowance for impairment of trade receivables.