First 1-3 Flashcards
What is the most important accounting book?
The General Ledger
What is an asset?
Something owned by the business.
Where must the VAT number be quoted?
All invoices and other business documentation.
What are the two traditional types of asset?
Fixed Assets and
Current Assets.
How many sections does a balance sheet have?
Two
What are the advantages of voluntary VAT registration?
The business can still reclaim VAT on its purchases;
It aids cashflow as the business has the use of the VAT collected from customers before it has to make payments to HMRC;
In business-to-business transactions, businesses that are themselves VAT-registered often prefer to deal with other VAT registered businesses.
What is the difference between a Credit Note and an invoice?
They are the opposite of each other: the Credit Note decreases the amount owed by the customer to the supplier. It can be printed in red!
What is liability?
An amount owed by the business.
What does “cash transaction” mean?
This term mean payment by any means, so long as it is immediate.
What Ledger accounts are normally kept by a business?
Normally, there will be a different Ledger account for every type of income received; expenditure incurred; asset owned and liability owed.
Which other name is the General Ledger known by?
Nominal Ledger
What is the role of a book-keeper?
To provide accurate accounting records of a business.
In a Balance Sheet, what are Fixed assets?
Items normally of a long life, bought to be used in the business and not for the purpose of resale to a customer.
What is a Goods Returned Note?
Used by the supplier or customer to record details of any goods returned. It will then be used as the basis when preparing the Credit Note.
Information on the Goods Returned Note should include:
Customer details;
Date goods were returned;
Details & quantity of items returned;
Reason for returning the goods.
What should ALL invoices include?
An invoice number;
Supplier’s name and address;
VAT registration number;
Customer’s name and address;
Invoice date/ tax point;
Customer’s order number;
Quantity and description of goods;
Unit price of goods;
VAT amount;
Total amount to be paid.
What is the Lower or Reduced rate of VAT?
5%;
Added to very few items, e.g. domestic fuel and power, installation of energy-saving materials, children’s car seats, residential conversions…
What is the principle of double-entry?
Each transaction is recorded twice ; so each transaction has two separate effects on the business records.
What is a Day Book?
Day Books are used to list invoices sent or received.
What is the accounting equation?
Assets = Liabilities + Capital
What is output tax?
VAT-registered businesses collect this VAT from customers and pay that money to HMRC.
What is the minimum info recorded on a Day Book?
Date;
Supplier (purchase Day Book);
Customer (sales Day Book);
Invoice/Credit Note number;
Net Goods amount;
VAT amount;
Invoice total amount.
What is a Credit Note?
Issued by a supplier to a customer to correct an error on an invoice. It states the reason for the Credit Note and the amount.
By which other names is the Purchase Ledger known?
Bought Ledger or Creditors Ledger.
The Purchase Ledger is not contained in the General Ledger and it is not part of the double-entry system.
How many parts does an invoice consist of normally?
Two.
The original, sent to the customer; and a copy, kept for the supplier’s records.
What are goods purchased for later resale called?
Stock
If you want to calculate the VAT amount what do you do to the Net Value?
Multiply by 0.2
What is a debtor/trade debtor?
A customer who owes money to the business.
What is an invoice?
A document stating how much is owed to the supplier by the customer.
Sales Invoice for the supplier = Purchase Invoice for the customer.
How many rates of VAT are there?
Three
What is the sole purpose of the Purchase Ledger?
To be an analysis or breakdown of the Creditors Control account (a.k.a the Purchase Ledger Control account) in the General Ledger.
Why is the Order Number included in the invoice?
So that the customer can trace the order back the person who made it and make sure the company has authorised the expense.
What is the VAT registration number?
A number given to a business when it registers for VAT
In VAT, if you want to calculate the Gross Value what do you do to the Net Value?
Multiply by 1.2
If a cash discount is offered, what is the VAT calculation procedure?
VAT is calculated on the discounted value of goods.
The VAT shown in the invoice is recorded in the accounts as the amount owed to HMRC whether or not the customer takes advantage of the discount.
How is the Purchase Ledger used in combination with the Day Book?
The totals will be posted to the General Ledger accounts and the individual transactions will be posted to the relevant personal accounts in the Purchase Ledger.
What are Current Liabilities?
Liabilities which the business is due to settle in the next 12 months.
In a Balance Sheet, how many sections are assets divided into?
Two; Fixed assets and current assets.
How are current assets listed on the Balance Sheet?
These are listed in order of liquidity, i.e. the longer an asset takes to convert to cash, the higher it is listed in the current assets.
What are Fixed Assets?
Assets which tend not to change in value frequently e.g. premisses, machinery or motor vehicles tend to devalue over time rather than on a day-to-day basis.
In a Ledger account, where are increases in assets posted?
The debit side (left side)
What must be checked before posting a purchase invoice to the accounting records?
That the person had the authority to order the goods;
The price on the invoice corresponds to the quotation;
That the delivery is correct;
That all calculations and numbers on the invoice are correct.
What are credit transactions?
Receipt of goods and payment are separated by a period of time (usually 7 to 30 days).
Give examples of services purchased by a business.
Insurance costs;
Electricity charges;
Telephone charges.
What does “to cast” mean?
To add the figures vertically.
What are current assets?
Assets that CAN AND DO vary in values frequently e.g. money in the bank and cash on premisses; stock value changes from hour to hour.
What is a Creditor Control Account?
An account in the General Ledger that records the total owed to all creditors.
What are Long Term Liabilities?
Liabilities which fall due after more than one year.
What does E & O E mean?
Errors And Omissions Excepted: meaning that the supplier reserves the right to correct, at a later date, any errors included in the invoice.
In VAT dealings, what is the Gross Value?
The amount (value) after VAT.
What does “Posted” mean?
It means “Recorded”
In practical terms, what is VAT?
VAT is a tax on the final consumer. Effectively, a VAT-registered business acts as a tax collector for HMRC
What is “Tax Point”?
The date on which a sale was actually made. Used to define which tax period the money falls into.
What is trade discount?
A discount sometimes given to people who are in the same trade as the supplier.
“To Balance” means…
To Make Equal
What is a pro-forma invoice?
An invoice provided by the supplier in advance of supplying the goods.
What happens to the General Ledger when a transaction occurs?
Entries of the same total monetary value are made on each side i.e. credit and debit.
Give examples of goods that are purchased by a business.
Goods for resale (retail business);
Raw materials for production of finished goods (manufacture business);
Items used int the running of the business (stationery, machinery, vans, cars etc)
Give examples of assets.
Premisses; Machinery; Motor vehicles; Cash in the bank; Money owed to the business by customers.
What is the difference between Zero Rate and Exempt goods and services?
If a business supplies only Zero Rate goods and services, it would collect no VAT on its supplies but it would reclaim any VAT on its purchases.
If, however, a business supplies only VAT-exempt items, it cannot register for VAT and does not collect VAT on its supplies or reclaim VAT on its purchases.
What is input tax?
VAT-registered businesses can reclaim from HMRC the VAT they have paid their suppliers.
What is the standard rate of VAT?
20%
What is the Purchase Ledger?
Used to maintain a record of transactions between the purchases and individual suppliers. It contains an individual account for each credit supplier.
What is a Debit Note?
A document sent to the supplier claiming credit. It shows the reason for, and amount, of the claim.
A Debit Note will often result in the issue of a Credit Note by the supplier and the two will be compared to ensure the right credit has been given.
What is required of invoice numbering?
It must be chronologically ordered.
What are some types of transactions carried out by businesses?
Buying goods (stock) to resell;
Selling goods for cash or on credit;
Buying a vehicle for use in the business;
Buying machinery for production of goods;
Paying wages;
Borrowing money;
Pay taxes.
What is a Balance Sheet?
A statement of the assets and liabilities of a business at a particular time.
Items outside the scope of VAT.
Rates, wages and salaries; donations to charities.
What are the advantages of using a Day Book?
The TOTALS are posted to the General Ledger T accounts: fewer postings mean less opportunity for error;
Fewer postings mean quicker calculations of overall amounts;
Ensuring that the total of the Invoice Total column equals the sum of the totals of the other columns is a further check on accuracy.
What is bulk discount?
This is a discount sometimes given by businesses to encourage bulk buying. For example £3.50 for 1, £3.25/unit for 10, £3.00/unit for 20.
What are goods and services liable to VAT called?
Taxable supplies
What are the sections of a Balance Sheet?
Assets and Liabilities
In a Balance Sheet, what are current assets?
Cash, items held for resale or items that have a short life (petty cash, money in the bank or stock, for example).
In VAT dealings, what is the Net Value?
The amount (value) before VAT.
What is the layout of a Ledger account?
It is divided into two sides: a debit (DR) on the left and a credit (CR) on the right.
In VAT, if you want to calculate the Net Value what do you do to the Gross Value?
Divide by 1.2
What is capital?
The amount of money owed by the business to its owner.
It is often a lump sum introduced at the start of the business and it will increase when the business makes a profit and decrease when the owner withdraws money.
What are cash transactions?
Payment is made at the same time as the goods are handed over to the customer.
What is the zero rate of VAT?
0%
Food bought to be prepared at home, newspapers, children’s clothing and shoes, public transportation…
In trade discount, from which value is VAT calculated?
From the Net Goods Total (the amount after the trade discount).
What is cash discount (settlement discount)?
A type of discount only allowed if the stated terms of payment are met.
How are Fixed assets listed on the Balance Sheet?
These are listed by their life,i.e. the longer the life, the higher it is listed in the fixed assets.
List the documents flow in a business-to-business credit transaction and describe each document.
1 - Price Enquiry, Customer (C), to establish coat of goods.
2 - Quotation, Supplier (S), to confirm cost.
3 - Purchase Order, C, confirming order if the quotation is accepted.
4 - Order Confirmation, S, acknowledgement of order confirming that the goods have been received; that the goods required can be supplied; when delivery is expected to be made.
5 - Delivery Note/Goods Received Note, S, accompanies goods and confirms delivery. Details from the Delivery Note are copied onto the Good Received Note. Any variation between the goods delivered and the goods ordered, as stated in the purchase order, should be noted to ensure that the invoice is amended accordingly.
6 - Invoice, S, advises how much is owed for the goods supplied.
7 - Statement, S, lists all transactions between the supplier and the customer.
8 - Remittance Advise, C, advises which invoices are being paid.
Why would a pro-forma be issued?
Because the supplier cannot supply the goods before receiving payment.
How long must the General Ledger be kept for?
7 years
What does the term “extend” mean in book-keeping?
To calculate horizontally.
Who may be interested in the work of the book-keeper?
INTERNALLY, the owner may want to know how much is owed to the business; whether there are sufficient funds to pay staff wages; or if the business is spending more this years than last.
EXTERNALLY, Her Majesty Revenue and Customs (HMRC) will need accurate accounts for tax purposes; suppliers or potential investors may be making decisions based on the book-keeper’s records.
Items not covered by VAT (VAT exempt).
Insurance, providing credit, education and training (subject to certain conditions being met), fund raising events by charitable orgs, subscription to membership orgs, some services from doctors and dentist.
What are the two traditional types of liability?
Current Liabilities and Long Term Liabilities.
What is a creditor/trade creditor?
A supplier to whom the business owes money.
In Ledger accounts, where are Liabilities posted?
In the credit side (right side)
Which other names are Day Books known by?
Books of Originals or Prime Entry: because they are used to record original documents.
Why are accounts coded?
Giving accounts both titles and codes makes them easier to identify and is particularly useful when there are accounts with similar names.
Which coding system is normally used?
An alphanumeric system. The letters are used to identify the Ledger in which the account is to be found. Example: PL - Purchase Ledger SL - Sales Ledger GL - General Ledger
*the list of account codes is usually contained in a Coding Manual.
In the Purchase Ledger, where are Invoices and Credit Notes posted?
Invoices are posted to the Credit side and Credit Notes are posted to the Debit side
