Chapter 3 (Accounting systems and business documents)

Question 1

Source documents:

Define a source document

Answer 1

A source document contains the raw financial data of a business’s transactions.

The reason they’re labeled as “source,” documents is because these documents form the origin of this information.

Source documents are used to verify the information presented within accounting reports.

Question 2

Source documents for cash transactions:

List the source documents used to verify cash transactions

Answer 2

Cash receipts:
Cheque butts:
EFT receipts:

Question 3

Source documents for cash transactions:

Define a cash receipt

Answer 3

A cash receipt verifies that a business has made a sale to a customer (for cash) and has hence, received an inflow of cash.

The business issues this document both to the customer and to the business itself for recording purposes.

Question 4

Source documents for cash transactions:

Define a cheque butt

Answer 4

A cheque butt is a source document verifying that a business has paid cash to another entity.

A cheque butt is verified by the business themselves.

Question 5

Source documents for cash transactions:

Define an EFT receipt

Answer 5

An EFT receipt is issued by a business in two situations.

Either, when a business has made a payment via an electronic transfer of funds (via banking).

Or, if a business has received a cash payment via an electronic transfer of funds as well.

Question 6

Source documents for credit transactions:

Define an invoice and describe the two types.

Answer 6

An invoice is issued when a credit transaction takes place that verifies the creation of a debt (where one entity owes another entity).

Sales invoice: An invoice issued by a business when they make a credit sale of goods to a customer. Which acts as a document verifying that a business now has an accounts receivable.

Purchase invoice: An invoice that gets issued to a business when it purchases goods on credit and acquires a debt. This invoice verifies that the business now has an accounts payable.

Question 7

Source documents for internal transactions:

Define a memo

Answer 7

A memo is a source document recording the occurrence of an internal transaction.

The purpose of memos is to ensure these internal transactions aren’t overlooked.

As the informaiton they contian (regarding internal trnasacitons) is important to an owner’s decison making and must be inlcuded in reports to satisfy relevance.

Question 8

Source documents for internal transactions:

Define an internal transaction

Answer 8

An internal transaction is one which only affects a business and its owner.

An example is a contribution or a withdrawal of assets.

Question 9

Source documents for credit transactions:

Define a statement of account

Answer 9

A statement of account is a business document issued by a business to a credit customer summarizing all the transactions occurring between that business and its credit customer over a period.

The layout of the document shows the opening balance owed by one entity to another business on credit. Followed by any transactions occurring during the period. And then concluded by the final amount owed by the credit customer to the business at the end of the period.

This is not strictly related to trading businesses and customers and can include a summary of transactions between two entities, verifying accounts receivable and accounts payable for those businesses.

Question 10

Source documents for other transactions:

Define a credit note

Answer 10

A credit note is a type of source document issued to verify the return of goods after a credit sale has been made.

The return of goods can occur for various reasons. Such as a poor quality of goods invoiced.

Question 11

Source documents for other transactions:

Define a bank statement

Answer 11

A bank statement acts as a source document that verifies a transaction that’s occurred between a business and its bank.

Question 12

Source documents for other transactions:

Define an order form

Answer 12

An order form is a business document issued by a business when they request goods from a supplier.

Note: This business document doesn’t verify any transaction that has occurred. Thus, it cannot yet be recorded.

Question 13

Source documents for other transactions:

Define a quotation

Answer 13

A quotation is a business document issued to a customer containing the estimated cost of a good or service.

Note: This business document doesn’t verify any transaction that’s occurred.

Question 14

Source documents for other transactions:

Define a credit-card receipt

Answer 14

A credit card receipt verifies that a credit card has been used in a transaction. This extends to both a business and a customer using a credit card to make either a cash or credit purchase.

Question 15

Source documents for other transactions:

Define a shipping confirmation

Answer 15

A shipping confirmation is sent to a business by a supplier and verifies that goods have been shipped to the business by that supplier.

Question 16

Source documents for other transactions:

Define a delivery docket

Answer 16

A delivery docket is sent to a customer verifying that a delivery has taken place.

A delivery docket will contain a description of the goods delivered and show the quantity of goods delivered as well.

A delivery docket can be compared against the initial purchase of that customer to ensure the correct delivery has occurred.

Question 17

Accounting systems:

Outline the purpose of an accounting system

Answer 17

The whole reason a business has a system of accounting is to generate financial information to assist the owner in key decision-making.

Question 18

Accounting systems:

Identify the steps in the accounting process and explain what it shows.

Answer 18

Source documents-Records-Reports-Provides advice.
The accounting process traces the movement of data from its initial business documents through to business reports and an eventual analysis of performance.

Question 19

Accounting systems:

Describe the function of a computerized accounting system and list some advantages and disadvantages.

Answer 19

A computerized accounting system eliminates the need for manual recording and reporting of information sourced from business documents.

Advantages:
-Using this system can eliminate the occurrence of human errors when recording and reporting on information.
-Using this system if far more efficient given data can be entered within records and reports at a quicker speed than through a manual entry of data.

Disadvantages:
-Establishing this system can be quite costly on a business and its owner. Particularly for small business owners.
-Establishing this system may require extensive technological knowledge by a business owner to maintain it in the long run.

Question 20

GST transactions

Identify what an ABN stands for and describe its purpose

Answer 20

An ABN stands for an Australian business number. Every business that collects GST will receive an ABN after registering with the ATO.

An ABN is used to track all transactions in the life of a business which involve GST. Hence, it should be found on any source document verifying a transaction with the inclusion of GST.

These transactions range from credit sales, cash sales, credit purchases, cash payments and more.