Chapter 5 Exercise Review Flashcards
Explain why the GST on credit purchases does not affect the valuation of stock
It is a reduction in the debt owed to the ATO; the economic benefit will not be received when the stock is sold
The role of the purchases journal
To summarise all credit purchases of stock, so total credit purchases of stock can be posted to the General Ledger, reducing the number of ledger entries, thus increasing the efficiency of the recording system
Explain one difference in the way the purchases journal is posted to the general ledger compared to the way it is posted to the creditors ledger
The total of the Purchases Journal is posted to the General Ledger on the last day of the Reporting Period; individual transactions are posted to the Creditors Ledger accounts on the day the transaction occurred.
Explain how using a system of control accounts and subsidiary ledgers can improve reliability in reports
It allows for double -checking via the preparation of a debtors or creditors schedule so that the sum of the balances can be compared allowing detection of errors, improving reliability
Explain how using a system of control accounts and subsidiary ledgers can improve the management of debtors
Responsibility for managing debtors can be allocated to individual members of staff. this allocation of responsibility should mean greater accountability and thus more effective management of debtors
Explain why the records of Coppell Sports would show Gunter Basketball Club with a debit balance, whereas the records of Gunter Basketball Club would show Coppel Sports with a credit balance
In the records of Coppell Sports, Gunter Basketball Club is a debtor – an asset;
In the records of Gunter Basketball Club, Coppell Sports is a creditor – a liability.
State whether special journals belong to the input, processing or output stage. Justify your response.
Processing
The journals summarise transactions, transforming the raw data into a more usable form.
Explain 3 benefits that a business derives by adopting a system of control accounts and subsidiary ledgers for debtors and creditors
Benefit 1: Detection of errors: the balance of the Control account can be checked against the total of the Schedule to verify the accuracy of the recording.
Benefit 2: Allocation of responsibility: responsibility for managing debtors/creditors can be assigned to individual employees, increasing accountability for collecting/paying debts.
Benefit 3: Ease of reporting: only the balance of the Control account is reported in the Balance Sheet because individual accounts are removed from the General Ledger.
