Chapter 6&7 Flashcards
What is a cash transaction?
A cash transaction is one where goods or
services are paid for in cash/cheque/bank
transfer when they are received or delivered.
What is a credit transaction?
A credit transaction is one where payment is
made or received some time after delivery
(normally in one instalment after a few weeks).
Examples of Cash Transactions?
- Cash receipts and payments - receipts given and received, respectively;
- Cheques received and paid - bank paying-in book stubs and cheque book stubs, respectively.
- Visa payment slips and receipts and statement
- Bank statement – direct debits/standing orders/debit card
payments and receipts
Examples of Credit transactions?
Credit transactions:
* Invoices, credit notes and debit notes at the time the goods are received, sent or returned;
* The same as for cash transactions when payment is made or received.
What is a trade discount?
Trade discount is a discount given by one trader to another, and is deducted on the invoice indicating the amount that the buyer is charged for the goods.
What is a cash discount?
Cash discount is a reduction in the amount that the customer has to pay provided payment is made within a given period stipulated by the seller at the time of sale
(e.g. 5% if paid within 30 days).
What is an invoice?
Invoice – its main purpose is to inform the buyer how much is owed to the seller for the goods supplied. It is not a demand for payment.
What is a debit note?
Debit note – this is essentially an additional invoice to rectify any undercharge on the original invoice. Its main purpose is to inform the buyer of an additional amount owed to the seller for the goods supplied.
What is a credit note?
Credit note – its main purpose is to inform the buyer of a reduction in the amount that is owed to the seller as a result of goods being returned or an overcharge on the original invoice.
What is a books of prime entry?
- Before a transaction is recorded in the ledger it must first be entered in a book of prime entry.
- These are intended to facilitate the posting of the ledger in that transactions of the same type are entered in the same book of prime entry which is periodically posted to the ledger in total rather than one transaction at a time.
What are sales day book?
Sales day book – this is used to record the sale on credit of those goods bought specifically for resale. It is written up from copies of the sales invoices (and debit
notes) retained by the seller.
What are purchase day book?
Purchases day book – this is used to record the purchase on credit of those goods intended for resale. It is written up from the invoices (and debit notes) received from suppliers.
What are sales returns day book?
-Sales returns day book – this is used to record goods sold on credit that have been returned by customers. It is written up from copies of the credit notes retained by
the seller.
What are Purchases return day book?
Purchases returns day book – this is used to record goods purchased on credit that have been returned to suppliers. It is written up from credit notes received from suppliers.
What is a rule to remember about day books?
the amounts entered in all the day books are given after deducting trade discount, but before deducting cash discount.
What is a petty cash book?
Petty cash book – this is used to record cash received and paid. It is written up from copies of the receipts given and received, respectively
What is a cash book?
Cash book – this is used to record cheques received (and cash paid into the bank) and payments made by cheque (and cash withdrawn from the bank). It is
written up from the bank paying-in book stubs and cheque book stubs, respectively.
What is the journal?
The journal – this is used to record any transactions not included in the other books of prime entry such as purchases and sales of non-current assets (e.g. buildings) on credit, the correction of errors in the ledger, etc. It is usually written up from a copy of the invoice.
What is Double entry bookkeeping?
- Double entry bookkeeping is a systematic method of recording an enterprise’s transactions in a book called the
(general) ledger. - Each page of the ledger is split into two halves, the left half called the debit side, and the right half called the credit side.
- The ledger is divided into sections called accounts, each of which usually starts on a new page.
- The money value of each transaction is entered once on each side of the ledger in different accounts.
What is the main functions of
the double entry system?
- The main purposes of this system are to provide a means of ascertaining the total amount of each type of income and expenditure for a given accounting period, as well as the value of the assets owned by the business (e.g. cash) and how much is owed to and by the business at any point in
time. - This information is used to ascertain the profit (or loss) for a given accounting period, and to prepare a statement of financial position showing the financial position at the end of the period.
How do you know when account has a credit or debit balance?
When the total amount of money on the debit side of an account is greater than that on the credit side, the account is said to have a debit balance. When the reverse is the case, the account is said to have a credit
balance.
What does a debit balance represent?
An account with a debit balance represents either drawings, an asset (e.g. cash), an expense (including purchases) or a loss.
What does a credit balance represent?
An account with a credit balance represents either capital, a liability, income (e.g. sales) or a gain.
What is a T account?
T accounts are clear, visual representations of a business transactions that take the form of a “T” – left side for debits, right side for credits
What is a posting?
term to describe updating the
accounting records with transactions
Step 1 to the Approach to posting
- Determine the 2 accounts affected
Step 2 to the Approach to posting
- Consider the flow of value (when the value leaves an account it is credited, when the value enters an account it is debited).
- This relates to a debit account. Thus, the
opposite would be for a credit account
Step 3 to the Approach to posting
- Identify the money value that is transferring.
