CHAPTER 5

Question 1

Special journal

Answer 1

An accounting record that summarises similar transactions.

Question 2

Purpose of General ledgers

Answer 2

The main purpose of these special journals is to summarise similar transactions so that totals can be posted to the General Ledger, in the process reducing the number of ledger entries required and improving the efficiency of the recording system.

Question 3

Purchases journal

Answer 3

An accounting that summarises all transactions involving the purchase of stock on credit during a month.

Question 4

Control Account

Answer 4

An account in the General Ledger summarising the transactions recorded in the subsidiary ledger accounts.

Question 5

Subsidiary ledger

Answer 5

An additional set of ledger accounts kept outside the General Ledger, recording individual transactions for each individual debtor or creditor.

Question 6

Creditors schedule

Answer 6

A list of the name and balance of each individual account in the creditors ledger, added together to enable checking against the balance of the creditors control account.

Question 7

Sales journal

Answer 7

An accounting record summarising all transactions involving the sale of stock on credit during a month.

Question 8

Debtors schedule

Answer 8

A list of the name and balance of each individual account in the debtors ledger, added together to enable checking against the balance of the debtors control account.

Question 9

GST Settlement

Answer 9

a cash payment made to the ATO to settle the liability that occurs when GST on sales is greater than GST on purchases

Question 10

GST refund

Answer 10

a cash receipt from the ATO to refund the excess that occurs when GST on sales is less than GST on purchases.

Question 11

3 benefits of using control accounts and subsidiary ledgers

Answer 11

Double checking that allows detection of recording errors.
Ease of reporting
Allocation of responsibility

Question 12

Double checking that allows detection of recording errors

Answer 12

The preparation of a Debtors or Creditors Schedule allows the balance of the control account to be checked against the sum of the balances of the subsidiary ledger accounts. This allows for recording errors to be detected and corrected improving the Reliability of the balance reported in the Balance Sheet.

Question 13

Ease of reporting

Answer 13

The single balance for all debtors or creditors (provided by the control account in the General Ledger, and the Schedule) means that the Balance Sheet need only report the balance of the control account, rather than list every individual debtor or creditor, and their individual balances. Omitting these details
gives greater Relevance, as these details would not be useful for the types of decision-making that rely on the Balance Sheet for information.

Question 14

Allocation of responsibility

Answer 14

Separating the subsidiary ledger accounts from the
General Ledger means the management of the subsidiary ledger can be allocated to a particular employee. This employee can then be responsible for managing all dealings with debtors (such as the assessment of credit worthiness; the issuing of
sates invoices; the collection of receipts from debtors; and the management of bad debts) or creditors (such as the collection of purchase invoices and timely payment of creditors). Greater accountability would hopefully improve effectiveness, and would also leave the senior bookkeeper free to manage the General Ledger.

Question 15

3 weaknesses of control accounts

Answer 15

Additional record keeping and staff may be required.
Not suitable for all businesses.
Increases costs of record keeping due to specialised/extra staff required.