Chapter 3 - Double Entry Bookkeeping Flashcards
What is a sales order?
A customer writes out or signs an order for goods or services he/she requires
What is a purchase order?
A business orders from another business goods or services, such as material supplies
What is a ‘goods received’ note? where are they usually kept/used for?
A list of goods that a business has received from a supplier. usually used in the warehouse to confirm that goods have in fact been received before payment to the supplier
What is a ‘goods despatched note’?
A list of goods that the business has sent out to a customer.
What is a ‘statement’?
A document sent out by a supplier to a customer listing all invoices, credit noted and payments received from the customer.
What is a ‘credit note’?
A document sent by a supplier to a customer in respect of goods returned or overpayments made by the customer. it is a ‘negative’ invoice.
What is a ‘debit note’?
A document sent by a customer in respect of goods returned or an overpayment made. It is a formal request for the supplier to issue a credit note.
What is a ‘receipt’?
A written confirmation that money has been paid. This is usually in respect of cash sales such as a till receipt from a cash register.
What is a ‘bank statement’?
- also a form of a source document.
- may be received in hard copy or electronic
- allow a business to check its bank balance
Define invoice
Relates to a sale or purchase order
What are the two types of invoice?
- when a goods/services are sold on credit to a customer it is a formal request for payment
- when a business receives or purchases good or services on credit the supplier sends them an invoice.
What does an invoice show? (7)
- name and address of seller & purchaser
- date of sale
- description of sale
- quantity and unit price of what has been sold eg. 20 pairs of show at $25 a pair
- details of any discounts.eg. 10% off when 100 shoes are bought
- Total amount of invoice with details of the sales tax/GST/VAT
- date payment is due and other terms of sale
What are the uses for the different parts of a multipart invoice? (4)
- top copy to customer as request for payment
- second copy to accounts department to match eventual payment
- third copy to warehouse to generate the despatch of goods (evidence = good despatch note)
- fourth copy stapeled to sale order and kept in sales department as a record of sales.
Fill in the blanks:
China supplies sends out a ………to a credit customer in order to correct an error where a customer has been overcharged on an ………..
credit note; invoice
What are the main types of business transactions and what happens when they occur? (8)
- Cash sales - receipt issued
- Credit sales - invoice
- Sales returns - credit note
- Cash purchase - receipt recieved
- Credit purchases - Invoice received
- Purchases returns - credit note received
- Receipts - either receipts for cash sale or credit sales
- Payments - either payments for cash payments or payments to credit suppliers
What are ledger accounts/general ledger used for?
to record all transactions that a business makes
How should records of transactions, assets, and liabilities?
In chronological order and dated, cumulative totals (day by day, week by week, month by month, year by year).
Define the general ledger
an accounting record which summarises the financial affairs of a business. all principle ledger accounts are kept in the general ledger.
What does the general ledger usually contains the details of? (7)
assets, liabilities, capital, income, expenditure, profit and loss
What are some examples of accounts in the general ledger?
Machinery at cost (non-current asset), machinery, provision for depreciation (liability), inventories - raw materials (current asset), wages and salaries (expense item), bank charges (expense item)
Which types of accounts contribute to which sections of the financial statements? (2)
- income and expense = profit and loss
2. Asset and liability = statement of financial position
What is the structure of a ‘T’ account?
top = account name, left = debit, right = credit
Define double entry bookkeeping
is base on the idea that each transaction has an equal but opposite effect. Every accounting event must be entered in ledger accounts both as a debit and as an equal but opposite credit.
What is meant by the dual effect?
every transaction has two effects. eg if you buy a car for $1000 you have a car worth $1000 and $1000 less cash.
What are the two rules of double entry bookkeeping?
- a debit entry will increase an asset, decrease a liability and increase an expense whereas
- a credit entry will decrease an asset, increase a liability and increase an income.
What general rule of double entry bookkeeping must be observed at all times?
every financial transaction gives rise to two accounting entries, one a debit and the other a credit. therefore value of debits = value of credits.
True or false. a decrease in expense or an increase in an asset is a debit entry
false. INCREASE in expense and INCREASE in asset = debit.
True or false. an increase in revenue or an increase in a liability is a credit entry.
True.
True or false. an increase in an asset is a credit
False a DECREASE in an asset is a credit
True or false. a decrease in a liability is a debit
True
decreasing cash = decreasing Asset =
CREDIT
Increasing Asset =
DEBIT
Increasing liability =
CREDIT
What must accompany all journal entries for audit purposes?
a narrative explanation indicating purpose and authority of every journal entry
A debit entry will…
- increase an asset
- decrease a liability
- increase an expense
A credit entry will…
- decrease an asset
- increase a liability
- increase income
