Lesson 5 - Revision Flashcards
What is Accounting?
Accounting is a management information system that involves the collecting, sorting, classifying and recording of financial data to produce and report financial information to assist business owners in decision making.
What are the four stages of the accounting process?
- Source documents
- Records
- Reports
- Advice
A source document is…
A document that provides both the evidence that a transaction has occurred and the details of the transaction itself.
Recording is…
The process of sorting, classifying and summarising the data contained in the source documents so that it is more useable.
Reporting is…
The preparation of financial statements that communicate financial information to the owner.
Advice is…
The provision to the owners of a range of options available to their aims/objectives, together with recommendations as to the suitability of those aims / objectives
The accounting process is used to…
…take financial data and convert it into financial information in order to be able to make decisions about the business.
T/f - “Tax invoice” means the source document is an invoice.
False - this is on all source documents which involve GST and is a requirement set by the Australian Tax Office.
The two types of transactions are…
Cash and credit.
The point of difference between cash and credit transactions is…
The immediacy of the payment.
Cash = Customer pays immediately.
Credit = Customer pays at a later date.
Give me two pieces of info that would indicate that a source document was an invoice.
- Payment terms
- Invoice number
- The words “Due by”
T/f - The business at the top of the invoice has issued the source document.
True - the header can always be used to identify who issued the invoice.
This source document is a…
Cheque butt.
This source document is a…
Invoice.
T/f - This document is a source document.
False - This is a cheque. It cannot be used as a source document as it is not retained by either party in a transaction. It must be paid into the bank for processing.
This source document is a…
Memo.
T/f - This document is a source document.
False - a Bank Statement is not strictly a source document, though it can be used to verify a transaction in the absence of the original source document (e.g. if it got lost)
This source document is a…
Invoice.
This source document is a…
Cheque butt.
This source document is a…
Receipt.
This document is a…
Bank Statement
Source documents that are used for CASH transactions are…
Receipt
Cheque butt
Source documents that are used for CREDIT transactions are…
Invoice
What is the purpose of the Balance Sheet in Accounting?
A Balance Sheet is a financial statement that provides a snapshot of a company’s financial position at a specific point in time, showing its assets, liabilities, and owner’s equity.
What’s the difference between “current” and “non-current” assets on a Balance Sheet?
Current assets are short-term assets that are expected to be converted into cash or used up within one year, while non-current assets are long-term assets that have a useful life of more than one year, such as property and equipment.
What is the residual interest that an owner has invested in a business recorded as in the owners equity section?
Capital.
How do you calculate the total of the owners equity section?
Assets - liabilities = OE
How would you classify the following item?
Inventory is a current asset.
How would you classify the following item?
Van is a non-current asset.
How would you classify the following item?
Electricity bill is a current liability.
How would you classify the following item?
Accounts Receivable is a current asset.
How would you classify the following item?
Accounts Payable is a current liability.
How would you classify drawings?
Owners equity.
How would you classify capital contribution?
Owners equity.
Which two figures must balance in the Balance Sheet?
Total Assets = Total Equities
How do you calculate Total Equities?
Total Liabilities (CL+NCL) + Total OE
Why does a balance sheet have two columns for balances?
Left column = item totals
Right column = element totals
Cash payments are recorded in the…
Cash receipts journal
Cash payments are recorded in the…
Cahs payments journal
After being recorded in the CRJ and the CPJ, the totals are transferred to which report?
Statement of Receipts and Payments (SoRP)
What is the purpose of the Statement of Receipts and Payments?
To calculate the Cash Surplus/Deficit and Closing Bank Balance
How do you calculate Cash Surplus/Deficit?
Cash Receipts - Cash Payments
What is the name given to the headings of each column in the CRJ and CPJ?
Classification columns
What is the name given to the classification column used for infrequent receipts and payments?
Sundries
In the SoRP, how are the Sundries to be recorded?
Sundries should be recorded individually rather than reporting a single “Sundries” total.
T/f - The total amount of the transaction always goes in the “Bank” column.
True - the total goes in Bank, then the amount is split up in the classification columns.
E.g. Purchase of cleaning supplies for $550.
Bank = $550
Cleaning supplies = $500
GST = $50
T/f - The GST column is for recorded GST Paid or GST Received only.
True - some items that appear in the CRJ and CPJ do not attract GST because they are not goods or services.
E.g. Drawings, capital contribution, interest, wages
