Chapter 6 Exercise Review Flashcards
Explain one benefit of recording transactions in special journals
By summarising similar transactions, they allow totals to be posted to the General Ledger, reducing the number of entries required and thus increasing the efficiency of the recording system.
Explain how the headings of the classification columns in the journals are determined
Frequent cash payments are given their own column; infrequent cash payments are recorded in the Sundries column.
Explain why the cash payments/reciepts journals have a sundries column, the purchases and sales journals does not
The Cash Payments Journal records a variety of cash payments, some of which are infrequent; the Purchases Journal only records one type of transaction (credit purchases of stock), so a Sundries column is not necessary
What does bank statement as a receipt number indicate
It was deposited directly into the Bank account, so it is verified by the Bank Statement
Explain the double checking mechanism contained in the cash receipts journal
The total of the Bank column should equal the same figure as the sum of the classification columns (excluding Cost of Sales).
Explain why the GST settlement is not recorded in the GST column of the cash payments journal
Because it is not paid to suppliers on purchases, but to the ATO to settle the GST debt, and this payment is only infrequent
Explain why it is more likely that a business will end up with a credit in its GST clearing account
Selling prices are usually higher than cost prices, so the GST on sales (which creates a liability) is likely to be greater than the GST on purchases (which decreases that liability), and this liability will have a credit balance.
Reasons why GST balance would be a debit
Purchase of a large amount of stock that has not sold
Purchase of an expensive non-current asset
Effect of a GST refund on the balance sheet of a business
No overall effect:
although Bank will increase by $200, GST Clearing (which in this case is an asset) decreases by the same amount.
Effect of a discount on a payment to creditor on the accounting equation
Assets: Decrease (bank)
Liabilities: Decrease (debt that was owed not including discount)
Owners Equity: Increase (discount revenue)
Explain why the discount received from creditors is classified as revenue
It is a reduction in an outflow of economic benefits (less Payments to Creditors) in the form of a decrease in liabilities (Creditors Control), which results in an increase in Owner’s Equity
2 control procedures that will detect errors in errors in the creditors ledger
Compare the total of the Creditors Schedule against the balance of the Creditors Control account in the General Ledger; they should show the same figure.
Compare the transactions in each account in the Creditors Ledger against what is listed in the Statement of Account from that creditor.
2 benefits of offering discounts to debtors
Cash is received faster from debtors (and can then be used to meet payments). The possibility of bad debts is reduced.
It may encourage greater sales (by attracting customers who wish to take advantage of the discount).
Explain why there is no GST attached to a receipt from debtor
It is a receipt from a debtor, and GST was charged when the credit sale was made.
Effect of a receipt from debtor with a discount expense
Assets: Decrease
Liabilities: No effect
Owners Equity: Decrease
