Chapter 2 Accounting information system Flashcards
Explain the difference between cash transaction and a credit transaction
-Cash transaction refers to transactions where payment is made at the point of sale of goods or services while credit transactions refers to transaction where payment for goods or services is delayed or postponed to an agreed-upon future date.
Why business buy on credit instead of paying cash
When a business buy goods and non-current assets on credit, it can receive the goods and non-current assets first and pay later. Thus, cash can be used for other operations of the business
State the four stages of an accounting cycle
-identifying and recording
-adjusting
-reporting
-closing
State the 5 stage in the accounting information system
-source document
-journal
-ledgers
-trial balance
-financial statement
What is a source document?
-A source document is a written document that provides details of a transaction and the evidence that business transactions have actually taken place. The transaction is recorded at the original cost that it occurred.
Explain, using a suitable accounting theory, why source documents are important.
-Source documents are important as they provide evidence that transactions have taken place and this is consistent with the objectivity theory which states that accounting information recorded by business must be supported by reliable and verifiable evidence so that financial statements will be free from opinions and biases.
State two reason why source documents are important in business transaction
-they serve as an objective and verifiable evidence that a transaction has taken place
-they ensure that the transactions are recorded accurately as all the details of the transactions are captured on the source documents
Purpose of receipt
-To acknowledge payment received (cash or cheque) from customers after goods have been sold or services have been provided.
Purpose of Invoice
-To inform credit customers of the amount owed for goods or services provided on credit
Purpose of Credit Note
-To inform credit customers of a reduction in the amount owed due to an overcharged or goods return to the business.
Purpose of debit note
-To inform the credit customers of an increase in the amount owed due to an undercharge.
Purpose of Remittance Advice
-To inform credit suppliers that payment by cheque has been made for a specific invoice .
Purpose of Payment Voucher
-An internal document used by the business to process payment to credit supplier
Purpose of Bank Statement
-Allows the business to check and tallies against the business bank records of its cash at bank account.
