Lecture 7-8 (The accounting information system)

Question 1

BOOKS OF PRIME ENTRY

Answer 1

Sales day book
Purchase day book
Cash book
Journal book

No prescribed format.
Layout normally includes:
Dates
Description and name of account the transaction will be posted to 
Amount
Reference

Question 2

SALES DAY BOOK

Answer 2

Lists all credit sales made.

Question 3

PURCHASE DAY BOOK

Answer 3

Lists all credit purchases made.

Question 4

CASH BOOK

Answer 4

Records all cash sales and purchases (including cheques) plus any other items that affect the bank account.

Question 5

JOURNAL BOOK RECORDS

Answer 5

All journal entries made. These deal with corrections of errors or items that are not covered by any of the other books of prime entry.

Question 6

NOMINAL LEDGER

Answer 6

All running balances

Question 7

What are other records available to help check accuracy of records?

Answer 7

Debtors ledger (sales ledger)
- Details all trade receivables.
- Listed by customer name, so allows us to identify how much is owed by a particular customer.
Creditors ledger
- Details all trade payables.
- Listed by supplier, hence allows identification of how much is owed to a particular supplier.

Ledger balances can be checked against trade receivables and trade payables in the trial balance.

Question 8

LEDGERS

Answer 8

Control accounts- do not feed into the financial statements.

Question 9

Why is control necessary?

Answer 9

• Who owes us and how much?
• Who we owe and how much?
• What we own.
• Managing cash flow.
• Ensuring accounting records are as accurate as possible.

Question 10

EXTERNAL AUDITORS

Answer 10

Report to shareholders.
Use auditing standards.
Give opinion on true and fair view from financial statements.
Does not guarantee that there are no errors in the financial statements.

Question 11

BANK RECONCILIATIONS

Answer 11

Cash book can be checked to bank statements.

Question 12

Why may the cash book and bank statement have differences?

Answer 12

• Incorrect entries in the cash book.
• Incorrect entries in bank statement.
• Items in cash book not yet shown in bank.
• Items in bank not yet in cash book.

Question 13

Stages of bank reconciliation.

Answer 13

Bring cash book up to date:
- Check additions and brought forward figures.
- Correct any incorrect entries in the cash book.
- Debit the cash book with any receipts not entered.
- Credit the cash book with any payments not yet entered.
Correct the bank statement for differences:
- Correct any incorrect entries.
- Add receipts that have not been processed by the bank.
- Subtract payments made by the focal organisation that have not been presented to/cleared by the bank.