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AP > Monthly Accounting Practice (5) > Flashcards

Monthly Accounting Practice (5) Flashcards

1
Q

Define Accounting cycle?

A

An accounting cycle is a sequence of procedures that are used to record and process accounting information.

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2
Q

Define Chart of accounts?

A

A chart of accounts is a list of an entity’s general ledger accounts.

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3
Q

Define Contra account?

A

A contra account is a general ledger account that opposes the account with which it is paired under double entry.

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4
Q

Define Creditor’s statement?

A

A creditor’s statement is a document that is prepared by the creditor indicating how much is owed.

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5
Q

Define Error?

A

An error is a mistake that has been made unintentionally, causing discrepancies in the accounting information.

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6
Q

Define Ledger accounts?

A

A ledger account is a summary of transactions posted from the journals or books of original entry.

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7
Q

Define Outstanding cheques?

A

These are cheques issued by the business and, therefore, recorded in the cash book/cash payments journal of the business, but have not been presented for payment by the payees.

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8
Q

Define Outstanding deposits?

A

These are cash receipts recorded in the cash book/cash receipts journal of the business but have not yet been deposited into the business bank account by the business.

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9
Q

What is an ex lege warranty?

A

A warranty that applies through the operation of law

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10
Q

Patrick concludes a contract with Liz, in terms of which Patrick will supply Liz with 20 tonnes of grapes from his harvest, if the grapes are determined to be of an adequate quality to produce wine. If the grapes are not of an adequate quality to make wine Liz does not have to purchase the grapes. What type of clause is this?

A

Assumption

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11
Q

Jack enters into a one year contract with Global Gym. In terms of this contract, should Jack wish to terminate his contract before the year is up, he will have to pay a
cancellation fee. What type of clause is this?

A

Penalty clause

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12
Q

Railway hires Henry to build furniture for her new house. In terms of this contract the furniture must be a specific size and colour. They agreed that should the furniture not meet these minimum standards or should payment not be received, the contract may be cancelled. What type of a clause is this?

A

Lex Commissoria

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13
Q

Can the jurisdiction of a court ever be excluded by
agreement by the parties in a contract?

A

No, because it infringes on the parties’ constitutional rights

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14
Q

What would a creditor provide you with if you owed them money?

A

Creditors statement

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15
Q

What is a contra account?

A

A ledger account which opposes the account that it is paired with

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16
Q

A type of journal What is a chart of accounts?

A

A list of a business’s ledger accounts

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17
Q

Which term describes a sequence of procedures used to record and process accounting information?

A

Accounting cycle

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18
Q

The accounting cycle comprises the various stages through which all transactions go during a reporting period. The cycle begins when each transaction occurs and ends when such a transaction is reported in the financial statements. The accounting cycle can be presented graphically, as follows?

A
  • Transactions
  • Source documents
  • Books of original entry (Journal)
  • Ledger
  • Trial Balance
  • Financial Statements (annually)
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19
Q

Transactions from the journals (i.e. books of original entry) are posted to the general ledger at?

A

the end of each month.

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20
Q

The general ledger contains all ledger accounts and shows?

A

the transaction history and current balances of these accounts.

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21
Q

There are many reasons why general ledger accounts are important, and therefore, used. These reasons include, but are not limited to, the fact that?

A
  • they provide an orderly and meaningful summary of transactions (as similar transactions are recorded under one account heading);
  • account balances are easily accessible;
    they help in preparing the trial balance; and
  • they store information that is used for preparing financial statements.
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22
Q

Posting is the process of?

A

transferring entries from journals to general ledger accounts.

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23
Q

A ledger account is T-shaped, with a debit side on?

A

the left and a credit side on the right.

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24
Q

The double entry principle is applied when posting to the ledger accounts. For every debit entry posted to a general ledger account, there must be an equal and?

A

corresponding credit entry posted to another general ledger account (i.e. the contra account). When transactions are posted from the journals to the affected general ledger accounts, only one account is created for similar transactions.

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25
Q

Which term describes a sequence of procedures used to record and process accounting information?

A

Accounting cycle

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26
Q

Blue Bakery’s Bank account contains the following transactions in the ledger.
R 4 000 Balance b/d
R 2 000 Sales
R 2 500 Loan repayment
What would the Balance c/d value be at the end of the month?

A

R 3 500

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27
Q

Explain the importance of general ledger accounts. General ledger accounts are important because:

A
  • they provide an orderly and meaningful summary of transactions (as similar transactions are recorded under one account heading);
  • account balances are easily accessible;
  • they help in preparing the trial balance; and
  • they store information used for preparing financial statements.
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28
Q

A business receives R 5000 cash for goods sold. The accountant, therefore, debits the bank account for R 5000. What contra account needs to be credited?

A

Sales

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29
Q

Where would the opening balance of a favourable bank account be recorded?

A

Debit side of the general ledger

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30
Q

Indicate whether the following statements are true or false.
- The purpose of a chart of accounts is to establish a framework for classifying, recording and reporting business transactions.
- All businesses use the same chart of accounts.
- A normal liability account has a credit balance.
- A ledger that contains all accounts needed to prepare financial statements is called a general ledger.
- Posting is the process of transferring information from the journals to the general ledger accounts.
- A journal entry only needs to be posted to one general ledger account.

A

True
False
True
True
True
False

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31
Q

Bought furniture from a supplier on credit?

A

Furniture and trade payables

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32
Q

Sold goods for cash.

A

Bank and sales; Cost of sales and trading inventory

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33
Q

Business owner contributed cash as capital.

A

Bank and capital

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34
Q

Paid for electricity by cheque.

A

Electricity and bank

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35
Q

Paid a supplier by cheque in settlement of account.

A

Trade payables and bank

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36
Q

Purchased trading inventory on credit.

A

Trading inventory and trade payables

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37
Q

A trial balance is a list of all general ledger account balances for a specified period; usually a month or a year. It consists of four columns?

A
  • the column in which all the accounts are listed;
  • the folio column in which the accounts references/codes are listed;
  • the debit column in which the debit account balances are listed; and
  • the credit column in which the credit account balances are listed.
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38
Q

the trial balance is divided into two sections, namely?

A
  • the statement of financial position section under which capital, drawings, asset and liability accounts are listed, along with their balances; and
  • the nominal accounts section under which income and expense accounts are listed, along with their balances.
39
Q

Errors of omission?

A

when a transaction is not recorded in the books of original entry.

40
Q

Errors of commission?

A

When a transaction is posted at the correct amount but to the wrong account of the same class. For example, the purchase of an office computer, an asset, is posted to the machinery account, which is also an asset.

41
Q

Errors of principle?

A

When a transaction is entered in the wrong class of accounts. For example, when the purchase of an office computer, an asset, is posted to the stationery account, an expense.

42
Q

Compensating errors?

A

When, by coincidence, errors cancel each other out.

43
Q

Reversal of entries?

A

When a transaction is posted to the correct accounts but on the wrong side of each account. For example, when a cash sale is posted to the debit side of the sales account and the credit side of the bank account.

44
Q

Error of duplication?

A

When a transaction is recorded twice in the general ledger.

45
Q

A trial balance that does not balance is an indication that errors might have occurred in the process of:

A
  • recording transactions in the source documents;
  • transferring the transactions to the respective journals;
  • posting the transactions to the ledgers; or
  • summarising the account balances in the trial balance.
46
Q

The following errors will cause the trial balance not to balance:

A
  • incorrectly adding up columns in the trial balance;
  • posting general ledger account balances to the wrong side of the trial balance
  • incorrectly calculating general ledger account balances;
  • entering a general ledger balance twice in the trial balance;
  • posting the incorrect account balance to the trial balance, while the balance is correct in the general ledger;
47
Q

Errors committed in the process of recording transactions must be traced and corrected. The following steps should be taken to trace the errors:

A
  • Recalculate the totals of the debit and credit columns of the trial balance.
  • Recalculate the balances of the individual ledger accounts.
  • Check whether or not the general ledger balances have been posted to the correct side of the trial balance.
  • Check to see whether or not any account balance has been omitted from the trial balance.
  • Check whether or not transactions were correctly posted from the books of original entry (journals) to the ledger accounts.
48
Q

Correcting errors made in journals?

A

a journal entry would have to be passed in the general journal and the affected accounts in the general ledger as well as the affected account balances in the trial balance would have to be adjusted accordingly.

49
Q

What type of error is the result of a transaction not being recorded in the original books of entry?

A

Error of omission

50
Q

What is used to check the accuracy of the general ledger?
Accounting cycle

A

Trial balance

51
Q

Which error WILL be revealed by drawing up a trial balance?

A

Incorrect ledger account balances

52
Q

A company received R500 for the sale of goods. They recorded this amount by debiting bank twice and crediting sales twice. What error has been made?

A

Error of duplication

53
Q

Which group of accounts appears first in the trial balance?

A

Owner’s equity

54
Q

What is the purpose of a trial balance?

A

A trial balance is used to check the arithmetical accuracy of ledger accounts, locate errors in the ledger accounts, and prepare financial statements.

55
Q

A trainee accountant has compiled a trial balance from the general ledger balances, and the totals of the debit and credit columns agree. However, the senior accountant still insists that there could be errors. Explain whether or not it is possible for a trial balance to have errors, even if it balances. If yes, give examples.

A

Yes, it is possible for a trial balance to agree, even if there are errors. This is because there are errors that are not revealed by the trial balance. Examples of such errors include:

  • incorrect ledger account balances;
  • entering a ledger balance twice in the trial balance;
  • posting the wrong amount to the trial balance;
  • posting to the wrong side of an account;
  • incorrect journal entries; and
  • omitting an account from the trial balance.
56
Q

Information not found in the control accounts.

A

In relation to debtors
- Amount owed by each individual debtor
- The amount due and payable by each debtor at the end of each month
- The age analysis of each debtor’s debt
- Debtor’s accounts that are in arrears, thus, on which interest must be charged

In relation to creditors
- Full details of individual transactions that took place between the business and its individual creditors during the month
Amount owed to each individual creditor
- The amount due and payable to each creditor at the end of each month
- The age analysis of amounts owed to the creditors (to avoid falling into arrears and, thus, incurring preventable interest charges)

57
Q

Where are individual debtors and creditors accounts posted?

A

Subsidiary ledgers

58
Q

If a debtor returns inventory, which column will the entry be recorded in the subsidiary ledger?

A

Credit

59
Q

When a business pays a creditor to settle part of their account, which column does the business record this in (in the subsidiary ledger)?

A

Debit

60
Q

At the beginning of the month, your debtor J. Shaw owes your business R 3 000. He then settles half of his account. A few days later, he returns the inventory that he purchased for R 1 000. What will be recorded in the balance column at the end of the month?

A

R 500

61
Q

Which of the following best describes a debtor?

A

People or businesses who owe you money

62
Q

Creditor’s reconciliation is the process by which the entries in the creditor’s ledger are compared and reconciled against?

A

a monthly statement received from the creditor

63
Q

A creditor’s statement is a document prepared by the _______ , indicating the _______ by the business to the creditor at the beginning of the month, all the transactions that took place between the business and the creditor during the month, as well as how much the business _____ the creditor as at the end of the current month.

A

supplier (creditor)
balance owed
owes

64
Q

The difference in the balances may be attributed to the following errors?

A
  • errors made by the business;
  • errors made by the creditor; or
  • errors made by both the business and the creditor.
65
Q

Examples of errors that creditors often make include, but are not limited to:

A
  • capturing invoices at incorrect amounts;
  • omitting credit notes, payments and/or settlement discounts;
  • incorrectly calculating discounts; and
  • incorrectly calculating interest payable on our overdue balance.
66
Q

Errors made by the business must be corrected in the creditor’s journal, general ledger and/or the?

A

creditors ledger, depending on where the error originated.

67
Q

During the creditors reconciliation process. what is the creditors ledger compared to?

A

Creditors statement

68
Q

If you owe a creditor money, what will this be reflected as on the creditors statement?

A

Debit

69
Q

Where would the business correct any errors that were made by the creditor?

A

Creditors reconciliation statement

70
Q

When a business makes a mathematical error when recording what is owed to a creditor, where must this be corrected?

A

Creditors ledger or general ledger

71
Q

Your business decides to return inventory to a creditor. What would this be reflected as on the creditors statement?

A

Credit

72
Q

List examples of errors that can result in a different creditor’s ledger account balance from the creditor’s statement balance.

A

Examples of errors that can result in a different creditor’s ledger account balance and creditor’s statement balance include:

  • invoices not entered correctly or omitted entirely;
  • mathematical errors;
  • interest that was charged by the creditor on our overdue account, and was not recorded in the books of the entity; and
    -amounts paid or discounts not entered correctly.
73
Q

The purpose of a bank reconciliation is to?

A

reconcile the bank balance in the books of the entity (i.e. bank account) with the balance as per the bank statement.

74
Q

Transactions are recorded by the bank and the business in the following ways?

A

The bank regards the entity as a creditor since it keeps cash on its behalf. Any cash deposited into the bank increases the balance, and payments, such as bank charges and payments by cheque, decrease the balance. The account is debited when it decreases and credited when it increases. As a result, a favourable bank balance will be a credit balance on the bank statement and vice versa.

75
Q

The differences between the cash book/bank account and bank statement?

A

Cash book/Bank Account:
- Debit balance (favourable)
- Credit balance (unfavourable)

Bank Statement
- Debit Balance (unfavourable)
- Credit Balance (favourable)

76
Q

The differences between the balance as per the cash book/bank general ledger account, and the balance as per the bank statement, could be due to:

A
  • timing differences;
  • unrecorded items; or
  • errors.
77
Q

Where would the business record an outstanding deposit on the bank reconciliation statement?

A

Credit

78
Q

On the bank statement, what would a debit balance indicate about your account?

A

Unfavourable balance

79
Q

Which of the following may not appear on the bank statement (but does appear in the business’s books)?

A

Outstanding cheques

80
Q

What does the bank see a business as when it has a favourable bank balance?

A

Creditor

81
Q

If items do not appear on the bank statement, how does the?

A

Bank reconciliation statement

82
Q

How is the bank reconciliation process used as an internal control tool?

A

The bank reconciliation process is an internal control tool that is used to:
- discover errors in the cash receipts and cash payments journal and, ultimately, the bank account;
- discover errors on the bank statement;
- check for fraud;
- discover transactions omitted from the cash receipts and cash payments journal and, ultimately, the bank account; and
-discover transactions omitted from the bank statement

83
Q

The bank reconciliation statement is a comparison of the bank statement to the business’s ______________.

A

Cash book

84
Q

Cash deposits made by the business will appear on the ______________ side of the bank statement, while withdrawals and payments will appear on the ______________.

A

Credit; debit

85
Q

Bank charges of R 235 were not entered into the cash book. The correct adjustment will be done in the ______________.

A

Cash book

86
Q

An outstanding cheque on a bank reconciliation statement implies that a cheque was ______________.

A

Not yet presented to the bank at bank statement date

87
Q

Debit balance as per the bank account (adjusted) is R 2 500. Outstanding deposits = R 2 000; outstanding cheques = R 2 500. Calculate the balance as per the bank statement.

A

R 3 000 Cr

88
Q

Debit balance as per the bank account (adjusted) is R 2 500. Outstanding deposits = R 2 000; outstanding cheques = R 2 500. Calculate the balance as per the bank statement.

A

R 3 000 Cr

89
Q

If items do not appear on the bank statement, how does the business correct this?

A

Bank reconciliation statement

90
Q

Which of the following may not appear on the bank statement (but does appear in the business’s books)?

A

Outstanding cheques

91
Q

What does the bank see a business as when it has a favourable bank balance?

A

Creditor

92
Q

On the bank statement, what would a debit balance indicate about your account?

A

Unfavourable balance

93
Q

Where would the business record an outstanding deposit on the bank reconciliation statement?

A

Credit

AP (9 decks)

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