Chp 8: Basic Documentation And Books Of Prime Entry

Question 1

What are cash transactions?

Answer 1

Is one where goods or services are paid for in cash, bank transfer or credit card when they are received or delivered.

Question 2

What is a a credit transaction?

Answer 2

Is one where payment is made or received some time after delivery

Question 3

What is a trade discount?

Answer 3

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

Question 4

What is a cash discount?

Answer 4

• A cash discount is a reduction in the amount a credit customer has to pay, provided payment is made within a given period stipulated by the seller at the time of sale.
• The terms are included on the invoice (e.g 5 per cent if paid within 10 days).
• The discount must be recorded in the accounting system if the customer avails of it.

Question 5

What is an invoice?

Answer 5

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.

Question 6

What is a debit note?

Answer 6

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.

Question 7

What is a credit note ?

Answer 7

May be sent by the seller for a number of reasons.
These include:
- The buyer has returned goods because they were not ordered, or they were the wrong type, quantity or quality, or are defective.
- The seller has overcharged the buyer on the invoice. This may be due to an error in the unit price or calculations.

Question 8

What is a credit note definition?

Answer 8

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.

Question 9

What is a statement?

Answer 9

Is a historic list of the invoices, debit notes and credit notes that the seller has sent to the buyer during a given calendar month or months and the payments received.

Question 10

What is sales day book?

Answer 10

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

Question 11

What is purchases day book

Answer 11

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.

Question 12

What is sales returns day book?

Answer 12

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.

Question 13

What are purchases returns day book?

Answer 13

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.

Question 14

What are petty cash book?

Answer 14

this is used to record cash received and paid. It is written up from copies of the receipts given and received, respectively

Question 15

What is cash book?

Answer 15

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

Question 16

What is a journal?

Answer 16

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