Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

CIMA BA3 > Chapter 6 > Flashcards

Chapter 6 Flashcards

1
Q

Recap of recording transactions: three stages

A

1) Source Documents (Invoice)
-source documents are received by and generated by the business
–e.g. sales and purchases invoices and bank statements

2) Prime entry
-Transaction details are entered in the books of prime entry

3) Nominal ledger
Totals from the daybooks are recorded in the nominal ledger using double entry. The accounts are closed off at each period end and a trial balance can be produced

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Sales return: how to treat?

A

-this is effectively a negative sale

Use a sales returns daybook to record the return transaction

Double Entry
Dr Returns inwards (or sales if we issue the customer with a credit note)

Cr Receivables

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Purchase return: how to treat?

A

if goods are returned to a supplier it is effectively a negative purchase

Use a purchase returns daybook to record the return transaction

Double entry
Dr Payables
Cr Return outwards (or purchases if a supplier issues a credit note)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What is a credit note?

A

A credit note, also known as a credit memo, is a legal document that a seller issues to a buyer to correct an invoice or to indicate that credit is being applied to their account

In case of a sales return, if there is an ongoing relationship with a supplier or customer it is normal to issue them with a credit note showing them the amount no longer owed

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What is a debit note

A

Google: A debit note, also known as a debit memo, is a document that can be used to correct or adjust an invoice, or to notify a buyer of a debt obligation

FI: a formal request for a credit note to be raised

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

How are returns treated in financial statements

A

Returns figures are deducted from sales or purchases figures in the financial statements

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

For the following trial balance, what will sales be shown as? what will purchase be shown as?

Sales | | 30,000 Cr
Purchases | 20,000 Dr |
Returns | 5,000 Dr | 2,000 Cr

A

Sales will be shown as $25,000 and purchases will be shown as $18,000 in the accounts.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

On the returns account, how do sales returns and purchase returns show?

A

A debit balance on a returns account will always be sales returns and a credit balance will always be purchases returns

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

What are the two types of returns?

A

sales return
purchase return

sales return: A sales return is when a customer sends a product back to the seller for a refund, replacement, or credi
A purchase return occurs is when the buyer of merchandise, inventory, fixed assets, or other items sends these goods back to the seller.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What are the different types of discount?

A

1) Trade discounts - buying or selling for less than retail price
2) Settlement discount

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

How to treat trade discounts (words)

A

Google: As trade discounts are deducted before any exchange takes place, it does not form part of the accounting transaction, and is not entered into the accounting records of the business.

FI: No entries are made for discounts allowed or discounts received

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

How to treat trade discounts (double entry)

A

For a sale:
Dr Cash or Receivables $ x
Cr Sales $ x

For a purchase
Dr Purchase £ x
Cr Cash or Payables $x

where x is the amount after the discount has been deducted

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What is a settlement discount

A

A settlement discount is a reduction in the amount due if the debt is paid by a specified date

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What is an example of a settlement discount

A

X sells goods for $1000 and offered the customer a 5% discount for payment by 31st October

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

How should you treat a settlement discount?

A

You must record the amount of sales revenue you expect to received

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

What are the different scenarios expected for a settlement discount?

A

1) customer not expected to pay before date
2) customer is expected to take up discount and pays promptly
3) customer is expected to take up the discount but pays late
4) customer is not expected to take up the discount but pays promptly

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Settlement discount: customer not expected to pay before date

A

Ignore settlement discount completely

Dr Receivables $1000
Cr Sales $1000

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

Settlement discount: customer is expected to take up the discount and pays promptly

A

record the net amount of revenue after the discount has been deducted
for $1000 with 5% settlement discount

Double entry:
Dr Receivables $950
Cr Sales $950

Once customer pays the entry
Dr Cash $950
Cr Receivables $950

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

Settlement discount: customer is expected to take up the discount but pays late

A

record the net amount of revenue after the discount has been deducted
for $1000 with 5% settlement discount

Double entry:
Dr Receivables $950
Cr Sales $950

When customer pays
Dr Cash $1000
Cr Receivables $1000

AND a further entry
Dr Receivables $50
Cr Sales $50

19
Q

Settlement discount: customer is not expected to take up the discount but pays promptly

A

for $1000 with 5% settlement discount

Dr Receivables $1000
Cr Sales $1000

When customer pays
Dr Cash $950
Cr Receivables $950

AND a further entry
Dr Sales $50
Cr Receivables $50

20
Q

What are discounts received?

A

Recording the transaction from the point of view from the purchaser

21
Q

How should discounts received be treated?

A

As the purchaser decides whether to take up a discount or not - they decide how much they pay

22
Q

How should discounts received be treated? (direct entry)

A

X buys goods for $100 and takes up a 2% settlement discount

date of purchase:
Dr Purchases $100
Cr Payables £100

On payment
Dr Payables $98
Cr Cash $98

AND then clear payables account:

Dr Payables $2
Cr Discount Received $2

Discount received - income account in the statement of profit an loss

23
Q

Why might you sometimes see a discounts column in the cash payment book?

A

This is used to record the amount of the settlement discount at the time cash is paid

24
Q

Refunds how to treat

A

we have paid cash to a customer - there is a credit entry to the cash account.
debit entry to debit receivables control account

25
Q

Refunds how to treat - double entry

A

Dr Receivables
Cr Cash

26
Q

Sales taxes: most countries have some kind of sales tax on supplies of goods and services. In the UK this is known as

A

VAT (value added tax)

27
Q

Output and Input Tax

A

registered businesses
-CHARGE output tax on sales
-ARE CHARGED input tax on purchases

-can recover input tax against the output tax payable to the tax authorities

28
Q

How is tax treated in the financial statements

A

Sales, purchases, current and non-current assets are shown net of tax in the financial statements
NET OF TAX (The amount after tax has been deducted)

Receivables and payables are shown gross of tax
GROSS OF TAX ( The amount before tax has been deducted.)

29
Q

What is a sales tax (VAT) control account?

A

maintained to show the amount owed to or from the tax authorities.
This will be a current receivable or payable in the statement of Financial position

30
Q

What are the three types of sales tax rates?

A

Standard rates
Zero rate
Exempt

31
Q

Sales tax: what is the standard rate?

A

applied to most goods and services. In the UK the standard rate of VAT is 20%

32
Q

Sales tax: what is the zero rate?

A

a zero rate of 0% may apply to some goos and services
e.g. non-luxury food, childens clothes, newspapers

33
Q

Sales tax: what are exempt supplies

A

Exempt suppliers cannot charge sales tax or recover input tax.

In the UK exempt suppliers include health, burial and financial services transactions

34
Q

Output tax: net vs gross

A

sales of A (standard rated): 10,000 net
sales of B (standard rated): 10,000 gross

total amount of output tax:
net 10,000 * 20% (0.2) =2,000
gross 10,000 *(20%/120%) =1,666

35
Q

How is sales tax accounted for?

A

Using a control account

Amounts charged on sales are credited to the control account (payable to the tax authorities)

Amounts recovered on purchases are debited to the control account (recoverable from the tax authorities)

36
Q

What are irrecoverable sales taxes?

A

When businesses are not allowed to recover input tac on supplies
e.g. company cars and business entertaining

37
Q

What are the three types of payroll taxes

A

Gross pay and deductions
Employment costs
Wages and salary control accounts

38
Q

What is gross pay and deeductions

A

Employees usually pay tax on their earnings. These taxes are direct taxes. An employer may make deductions from employees gross pay to arrive at net pay

39
Q

What are the three main types of deductions?

A

1) Income tax
–UK = PAYE scheme

2) Social Security (SS) contributions. - NI contributions (employees NICs

3) Pension contributions/charitable donations

40
Q

How are deductions typically treated?

A

-Deductions are typically calculated by the employer, collected on the employees’ behalf and then are paid over to the tax authorities or other relevant government body pensions or savings provider

41
Q

What are employment costs?

A

When employers must also pay SS or NI contributions for each of their employees

Know as employers SS or NICS

42
Q

What is the total cost of employment?

A

the employees gross salary plus the employers SS (plus any other benefits e.g. pension)

43
Q

What are SS contributions taken from?

A

percentage of GROSS SALARY

44
Q

Wages and salary control accounts

A

at any time, a business may have amounts payable to individuals, the tax auth ot other,

The employer will maintain control accounts to account for the amounts due

45
Q

Ledger accounts for
sales net 10000 VAT 2000 Gross 12000
Purchases net 7000 VAT 1400 Gross 8400

A

Sales Cr 1000
Receivables Dr 1200
VAT Control (Sales (VAT)) Cr 200

Purchases Dr 7000
VAT Control (Purchases(VAT) Dr 1400)
Payables Cr 8400

CIMA BA3 (20 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2025 Bold Learning Solutions. Terms and Conditions