Chapter 9 - Accounting systems and VAT

Question 1

When a business makes a sale, what documents are involved throughout the process?

Answer 1

1. Sales Order
2. Goods Delivery Note
3. Sales invoice
4. Credit note

Question 2

When a business makes a purchase, what documents are involved throughout the process?

Answer 2

1. Purchase order
2. Goods received note
3. Purchase invoice
4. Debit note

Question 3

What are source documents?

Answer 3

Documents that will trigger an accounting entry

Question 4

What is standing data?

Answer 4

Data that does not regularly change, e.g. names, addresses VAT reg. no.

Question 5

What is real-time processing?

Answer 5

Transactions are processed by the accounting system as they are input.

Question 6

What is batch processing?

Answer 6

Transactions are input into the system, and processed later in one go.

Question 7

What is a journal entry?

Answer 7

A double entry into the system.

Question 8

What is a suspense account?

Answer 8

A temporary account where any ‘unknown’ transactions are recorded until an accountant identifies the correct account.

Question 9

What are the different examples of electronic transfer of funds?

Answer 9

• payment card
• direct bank transfer
• standing order/ direct debit
• bank interest/ charges

Question 10

What is the difference between a standing order and a direct debit?

Answer 10

• A standing order is controlled by the owner of the account and is usually the same amount.
• A direct debit is controlled by the receiving company and they can change the amount.

Question 11

What is petty cash?

Answer 11

Cash that is made on the business premises in order to make occasional payments (for sundry expenses).

Question 12

What is the imprest system?

Answer 12

1. The business decides on a ‘float’ - amount of cash to be held as petty cash.
2. Payments made from the float are recorded in the petty cash book - evidenced by an expense receipt.
3. When the petty cash runs low, a cheque is drawn to return the petty cash to the amount of the original float.

Question 13

What are examples of year-end adjustments?

Answer 13

• Recording depreciation
• Recording closing inventory
• Writing off IRD
• Accounting for allowance for receivables
• Accruals and prepayments
• Correction of errors

Question 14

What is VAT?

Answer 14

Value Added Tax is a form of indirect taxation. It is a tax on goods or services, not dependent on the wealth of a person.

Question 15

How is VAT taxed?

Answer 15

Output tax is charged on sales. Input tax is charged on purchases and may be reclaimed.

Question 16

How do you determine if you owe HMRC VAT or if HMRC owes you VAT?

Answer 16

If output tax>input tax, the business owes HMRC.

If output tax

Question 17

How do you calculate VAT from the net selling price (VAT exclusive price)?

Answer 17

Net selling price * (20/100)

Question 18

How do you calculate VAT from the gross selling price (VAT inclusive price)?

Answer 18

Gross selling price * (20/120)

Question 19

In what instances can input VAT not be recovered?

Answer 19

• Purchase of motor cars

- Client entertaining purposes