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AAT - Exam One > Chapter One > Flashcards

Chapter One Flashcards

1
Q

What are typical business transactions?

A
  • Selling goods or services
  • Buying goods to resell
  • Withdrawing cash from the bank
  • Paying expenses from the bank account or cash
  • Paying taxes such as VAT

These transactions are fundamental activities that businesses engage in regularly.

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2
Q

What is the basic purpose of accounting?

A

To record and classify accurately the business’s transactions.

Accounting serves as the documentation for a business’s financial activities.

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3
Q

What must the information on business documentation be?

A
  • Complete
  • Accurate
  • Valid

This ensures that the records reflect the true nature of transactions.

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4
Q

What is accounting?

A

The process of recording a business’s financial transactions.

This includes all monetary activities within a business.

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5
Q

What are the three main types of business entities?

A
  • Sole trader
  • Partnership
  • Limited liability company

Each type has different implications for ownership, management, and liability.

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6
Q

What is a sole trader?

A

The simplest form of business owned and managed by one person.

The sole trader is responsible for all business debts and receives all profits.

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7
Q

How are profits shared in a partnership?

A

Profits are shared between the partners in accordance with a profit-sharing agreement.

Partners are also jointly responsible for the business’s debts.

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8
Q

What characterizes a limited liability company?

A

The owners (shareholders) and managers are separate; debts are legally distinct.

Shareholders are not personally liable for the company’s debts unless they provide a personal guarantee.

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9
Q

What is the main purpose of financial records?

A

To measure performance and year-end position (cash, inventory, loans, etc).

Financial records help businesses understand their financial health.

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10
Q

What must financial records contain?

A
  • Complete
  • Accurate
  • Valid financial information

This ensures that all commercial transactions are properly documented.

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11
Q

Fill in the blank: Financial records must be maintained for all _______.

A

[commercial transactions undertaken by a business].

This is essential for accurate accounting and financial reporting.

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12
Q

What generates sales income?

A

Providing goods and services to customers generates sales income.

The terms ‘revenue’ and ‘sales revenue’ are also used to describe sales income.

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13
Q

What are examples of sales?

A

Sales could be sales of goods (e.g., dishwashers, cars, biscuits) or of services (e.g., using broadband, staying in a hotel).

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14
Q

What is the difference between cash sales and credit sales?

A

It is important to distinguish between cash sales and credit sales.

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15
Q

What defines cash sales?

A

The sale and the payment happen at the same time.

Payment can be made by cash, cheque, debit or credit card, all of which are regarded as cash.

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16
Q

What is the primary documentation for cash sales?

A

The primary documentation created is a till receipt.

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17
Q

What defines credit sales?

A

The seller provides the buyer with the goods or services, but no payment is made at that time.

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18
Q

How is payment made in credit sales?

A

The seller invoices the buyer and payment is made 30 or 60 days later depending on the seller’s credit terms.

Payment could take the form of cash, cheque, card or automated payment (e.g., BACS or direct debit).

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19
Q

What is the majority sales method for goods or services?

A

The majority of goods or services are sold on credit, except in the case of a retailer, such as a supermarket.

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20
Q

What does a seller issue in credit sales?

A

The seller issues an invoice to the customer.

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21
Q

In the example, is Tara’s sale to Cathy a cash or credit transaction?

A

This is a credit transaction.

Tara sells goods to Cathy for £100 and they agree Cathy will pay Tara in cash in two weeks’ time.

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22
Q

What are the risks of credit sales?

A

When a business sells on credit, there is a risk that the customer does not pay at the appropriate time or pay at all.

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23
Q

Who decides if credit is extended to customers?

A

Whether a particular customer is offered credit is decided by a business’s credit control function.

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24
Q

What is the first stage of the sales process?

A

Quotation is requested for goods/services.

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25
Q

What document is generated in the first stage?

A

Quotation/price list.

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26
Q

What occurs in the second stage of the sales process?

A

Order is placed.

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27
Q

What document is generated in the second stage?

A

Customer order (or sales order).

28
Q

What happens in the third stage of the sales process?

A

Goods are despatched.

29
Q

What document is generated in the third stage?

A

Delivery note.

30
Q

What occurs in the fourth stage of the sales process?

A

Payment is requested.

31
Q

What documents are generated in the fourth stage?

A

Invoice.

32
Q

What happens in the fifth stage of the sales process?

A

Goods may be returned to vendor.

33
Q

What documents are generated in the fifth stage?

A

Credit note and Remittance advice note.

34
Q

What is the sixth stage of the sales process?

A

Payment.

35
Q

What is important for business documents?

A

They must contain complete, accurate, and valid information.

36
Q

What can errors and omissions in documentation lead to?

A

Delays in sales, hindered payments, and errors in accounting records.

37
Q

What are some considerations when checking documentation?

A

Name of the customer/supplier, goods or services provided, product codes, price per unit, quantities, arithmetic, discounts, and VAT.

38
Q

What technique can be used to check document details?

A

The three-way matching technique.

39
Q

What is a quotation?

A

A written statement sent from supplier to customer advising them of the price of a specific good or service (or combination of the two).

40
Q

What is the first stage in the sales process?

A

A potential customer will enquire about the price of goods or the provision of a service.

41
Q

What should a quotation clearly state?

A

The goods or services to be supplied, the price, and the terms and conditions that will govern the contract, including any discounts.

42
Q

What is a customer order?

A

A request by a customer to purchase a specific quantity of goods (or specific services) from an individual or organisation.

43
Q

What happens if a potential buyer finds the price and terms acceptable?

A

They will produce an order, which is considered a customer order.

44
Q

What is included on a delivery note?

A

The address of the delivery, a unique sequential number, a precise description of the goods, and a signature from the receiver.

45
Q

Why is the unique sequential number important on a delivery note?

A

It can be used on other documentation and in any dispute.

46
Q

What must the stores department at Paving Co Ltd do upon receiving the delivery?

A

Check that the delivered goods match what was ordered and stated on the delivery note.

47
Q

What happens if there is a discrepancy in the delivery?

A

It must be recorded on the delivery note.

48
Q

How many copies of the delivery note are typically made?

A

There are normally more than one copy; the carrier, the customer, and Toby Parts Ltd each keep a copy.

49
Q

What information is not included on the delivery note?

A

Price information, as it is not relevant at this stage.

50
Q

What is the purpose of an invoice?

A

To show the goods or services provided to a customer with a statement of the amount required to be paid.

51
Q

When is an invoice raised?

A

Once the goods/services have been supplied and the delivery note has been sent to the customer.

52
Q

What might you be asked to do in an assessment regarding business documentation?

A

Check a quotation, a customer order, or a delivery note against other documentation, such as the invoice.

53
Q

What prompts the customer to pay for goods or services?

A

Receipt of the invoice.

54
Q

What is the unique identifier for an invoice?

A

A unique, sequential document number or code.

55
Q

What is the importance of the invoice date?

A

It indicates when the invoice is due for payment.

56
Q

What does the customer account code indicate?

A

It shows which account relates to the customer in accounting.

57
Q

How is the total list price calculated?

A

By multiplying the quantity by the unit price.

58
Q

What is deducted from the total list price to get the net amount?

A

A trade discount.

59
Q

What is added to the net amount to calculate the gross total?

A

VAT charged at 20%.

60
Q

What does ‘30 days net’ mean?

A

Payment is due 30 days after the invoice date.

61
Q

What is VAT?

A

Value Added Tax charged on sales.

62
Q

What is the current rate of VAT?

A

20%.

63
Q

What is the amount before VAT is added called?

A

The net amount.

64
Q

What is the formula to calculate the gross amount?

A

Gross amount = net amount + VAT.

65
Q

How do you calculate VAT?

A

VAT = Net amount x rate of VAT as a percentage.

66
Q

What is the VAT amount if the net amount is £10,800.00 and the VAT rate is 20%?

A

VAT = 10,800.00 × 20% = £2,160.00.

67
Q

What must you check before preparing the invoice?

A

You must first check that the goods were sent to Whitehill.

AAT - Exam One (10 decks)

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