Chapter 7: Cash accounting for service businesses

Question 1

Main source documents used to verify cash received (cash transactions)

Answer 1

Cash receipt, Cash register roll, Bank Statement, Electronic Funds Transfer (EFT) receipt, Credit card receipt

Question 2

Main source documents used to verify cash paid (cash transactions)

Answer 2

Cheque butt, Bank statement, EFT

Question 3

Journal

Answer 3

An accounting record that classifies and summarises transactions during a particular reporting period

Question 4

Statement of Receipts and Payments

Answer 4

An accounting report that lists cash receipts and payments during a reporting period, the change in the bank balance, and the opening and closing bank balance

Question 5

Single-entry Accounting

Answer 5

The process of recording transactions in journals and then using the summarised information to prepare reports

Question 6

Cash receipts journal

Answer 6

An accounting record that classifies and summarises all cash received from other entities during a particular reporting period

Question 7

Cash payments journal

Answer 7

An accounting record that classifies and summarises all cash paid to other entities during a particular reporting period

Question 8

Cash surplus

Answer 8

An excess of cash receipts over cash payments, leading to an increase in a positive bank balance or decrease in a bank overdraft

Question 9

Cash deficit

Answer 9

An excess of cash payments over cash receipts, leading to a decrease in a positive bank balance or an increase in a bank overdraft

Question 10

GST payable

Answer 10

GST owed by the business to the ATO when the amount of GST the business has received on its fees is greater than the GST it has paid to its suppliers

Question 11

GST Settlement

Answer 11

A payment made to the ATO by a small business to settle GST payable (operating outflow)

Question 12

GST receivable

Answer 12

GST owed to the business by the ATO when the amount of GST the business has paid to its suppliers is greater than the GST it has received on its fees

Question 13

GST Refund

Answer 13

A cash receipt from the ATO to clear GST receivable (operating inflow)

Question 14

Cash Flow cover

Answer 14

A liquidity indicator that assesses the firm’s ability of the business’s Operating Cash Flow to meet its short-term debts as they fall due

Question 15

What is the formula for Cash flow Cover?

Answer 15

Net Cash Flow from Operations / Average Current Liabilities