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Accounting > Credi Purchases > Flashcards

Credi Purchases Flashcards

1
Q

Why do businesses need to buy and sell on credit?

A

Not large enough cash. Cannot afford to pay for goods with cash

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2
Q

What are the different types of credit transactions?

A

Credit card transactions and credit on an open account

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3
Q

Who issues a credit card?

A

Bank to accountholder

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4
Q

What is a credit limit?

A

The bank allows the account holder to make purchases up to a certain limit

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5
Q

What happens when a person makes a purchase on the credit card?

A

The institution phone the bank for authorisation

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6
Q

How does the institution phone the bank for authorisation?

A

The credit card points that you find at Torpoint automatically contact the bank that issued the credit card and get electronic authorisation

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7
Q

Who does the bank pay?

A

Institution directly

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8
Q

What are credit card sales classified as?

A

Cash sales

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9
Q

Where are credit card sales recorded in?

A

Cash receipts journal

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10
Q

When does the bank issue the account holder a statement of account?

A

At the end of the month

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11
Q

How much must the accountholder pay?

A

Minimum amount of balance which is usually 5% before a certain date

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12
Q

What happens if there is extra credit balance remaining on the credit card?

A

Charged interest on a monthly basis

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13
Q

What is a credit card sale considered as to the seller?

A

For the seller, a credit card sale is considered a cash transaction as they get paid directly by the bank.

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14
Q

What is a credit card sale considered as to the buyer?

A

For the buyer, it is a form of credit transaction although it will not be recorded in the creditors journal.

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15
Q

What happens if there is a balance on the card?

A

so if there is a balance on the card, the accountholder may only spend the difference between that balance and his credit limit

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16
Q

When is the best time to pay off the balance?

A

At the end of the month

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17
Q

Why is it beneficial to pay at the end of the month?

A

Benefit of being able to ‘buy now and pay later.’ not charged interest by the bank. living within your means and not over-extending yourself!

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18
Q

What is a common form of credit transaction?

A

Credit on open account

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19
Q

What is credit on open account?

A

One business (the seller) agrees to grant the buyer a certain time to repay the purchase

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20
Q

What are the time periods for credit on open account?

A

30, 60 or 90 days

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21
Q

What does the time periods mean?

A

Buyer must pay for the goods 30 days (or 60 or 90) after the purchase.

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22
Q

What will the seller do if they buy pays before time period ends?

A

Seller will give the buyer an incentive and offer a discount if the full amount is repaid within the time period allowed.

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23
Q

What can’t sellers obtain credit without?

A

Without real security

24
Q

What does the the better the buyer’s credit history with the seller mean?

A

the better the buyer’s credit history with the seller, the longer the time the buyer will be granted to repay his debt.

25
Q

When does a bank overdraft occur?

A

Bank allows it account holder to spend more money than he has available in his current account

26
Q

What does the bank charge for when there is a bank overdraft?

A

Compound interest

27
Q

What do we regard the bank account as with a credit balance?

A

Liability

28
Q

How many different discounts are there?

A

Three

29
Q

Name the different discounts

A
  1. Cash discount
  2. Trade discount
  3. Bulk discount
30
Q

Define cash discount

A

The buyer gets a discount for paying cash

31
Q

Define trade discount

A

This discount is granted by one business to another on goods for the purchase of resale. Good that will be used as trading stock

32
Q

Define bulk discount

A

A business buys in bulk, the seller will often reduce the price per item

33
Q

What is the source document for a credit purchase?

A

Original credit invoice

34
Q

What is the source document used when the business pays off its date to the creditor?

A

Bank statement

35
Q

What is the source document used when we return an item to a creditor?

A

Duplicate debit note/original credit note

36
Q

What journal is used for a credit purchase?

A

Creditors journal

37
Q

What journal is used when the money is paid to the creditor?

A

Cash payments journal

38
Q

Where are creditors allowance recorded?

A

Creditors allowance journal

39
Q

Where are the journals posted to?

A

Debtors ledger

40
Q

Where do creditors transactions come from in the general ledger?

A

CJ, CPJ, CAJ

41
Q

Defime creditors

A

Business owes money to person or company it purchased products from

42
Q

What type of account is creditors?

A

Liability

43
Q

Why do business renumber their invoices?

A

Easier to refine

44
Q

What does the creditors journal record?

A

Credit purchases

45
Q

When are entries made in the CJ?

A

Daily basis

46
Q

What happens when there is a trading discount in the CJ?

A

Deduct trade discount the enter balance in creditors control and trading stock

47
Q

How is payment to a creditor made?

A

Internet transfer

48
Q

Where is a payment to a creditor made?

A

Cash payments journal

49
Q

What happens to creditors control in the accounting equation?

A

Decreasing (debit) owe less money

50
Q

What happens to bank in the accounting equation?

A

Decrease (credit) money is paid out

51
Q

Define creditors allowance

A

Goods and items purchased on credit can be returned to the supplier for various reasons

52
Q

What is the journal called that is used to return credit purchases?

A

Creditors Allowance Journal

52
Q

When a business pays its creditors amount owing, what happens?

A

EFT in Creditors control column - cpj

53
Q

What happens to creditors control column when money from CPJ is entered?

A

Debited

54
Q

What happens to the Creditors Control in the general ledger?

A

Liability - credit

55
Q

What happens to the credit that occurs in the bank account?

A

Total Payments figure

56
Q

What is the credit return transaction in the general ledger?

A

Exactly opposite of credit purchase transaction

Accounting (8 decks)

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