Essesntial accounting procedures

Question 1

What is an asset?

Answer 1

An asset is items of value owned by a company

Question 2

What is a liability?

Answer 2

It is money owed by an organisation to another organisation

Question 3

What is a debtor?

Answer 3

A person or organisation that owes money to the organisation

Question 4

What is a creditor?

Answer 4

A person or business to whom the organisation owes money to

Question 5

What is income?

Answer 5

Income is the money received from sales

Question 6

What is expenditure

Answer 6

Expenditure is money spent to purchase goods and services by the organisation

Question 7

What is a cash sale?

Answer 7

When the customer pays at time of sale

Question 8

What is a credit sale?

Answer 8

When the organisation allows the customer to pay some time after the sale

Question 9

What is a cash purchase?

Answer 9

When an organisation pays at time of purchase

Question 10

What is a credit purchase?

Answer 10

When the supplier allows the organisation to pay some time after the purchase

Question 11

Why is it better for an organisation if it pays for goods and services on credit?

Answer 11

It helps cash flow as the organisation is able to keep hold of its money for longer

Question 12

What is a cash transaction?

Answer 12

When an organisation makes a sale and receives payment straight away

Question 13

What is a credit transaction?

Answer 13

When an organisation makes a sale and receives payment sometime after.

Question 14

What is a profit?

Answer 14

When an organisation earns more money than it spends

Question 15

What is a loss?

Answer 15

When an organisation spends more money than it earns

Question 16

What is gross profit?

Answer 16

Gross profit is sales minus the cost of sales

Question 17

What is net profit?

Answer 17

Net profit is gross profit minus expenses

Question 18

What is a purchase order?

Answer 18

A document used by customers to list the goods that they want to purchase

Question 19

What is an invoice?

Answer 19

A document sent by the supplier to the customer listing the goods supplied and requesting payment

Question 20

What is a credit note?

Answer 20

A document sent to the customer informing of amounts refunded for returned goods

Question 21

What is a remittance advice?

Answer 21

A document sent to the supplier notifying them that an invoice has been paid

Question 22

What is a statement of account?

Answer 22

A document that summarises transactions between a supplier and customer

Question 23

What is a receipt?

Answer 23

A document given as proof of a cash transaction

Question 24

What are the 6 books of prime entry?

Answer 24

• Sales daybook
• Sales returns daybook
• Purchases daybook
• Purchases returns daybook
• Cash receipts book
• Cash payments book

Question 25

How often are the books of prime entry updated?

Answer 25

Daily

Question 26

What books are payments made and received detailed in?

Answer 26

• Cheques paid listing
• Cash paid listing
• Cheques received listing
• Cash received listing

Question 27

Why are codes used in an accounts department?

Answer 27

to make it easier to cross-reference documents and group information

Question 28

What is batch processing?

Answer 28

It is when batches of financial documents are entered all together rather than individually

Question 29

What is a paying-in slip?

Answer 29

A form used to pay cash and cheques into the bank

Question 30

Why is it important to complete a paying-in slip accurately?

Answer 30

To make sure the business accounts match the actual amounts being paid into the bank