POA notes chapter2

Question 1

What are business transactions?

Answer 1

Business transactions are any activities carred out by the business. According to the monetary theory, only business activities that can be expressed in monetary forms are recorded in the business’books. The two common types of transactions in any businesses are cash and credit transactions.

Question 2

What are the two examples of business transactions?

Answer 2

Cash transactions and Credit transactions

Question 3

What is they first difference between a cash transaction and a credit transaction?

Answer 3

A business that sells goods or provides services receives payment immediately from its customers (cash sales) while a business that sells gooods or provides services receives payment at a later date from its customers (credit sales)

Question 4

What is the second difference between a cash transaction and a credit transaction?

Answer 4

A business that buys goods or services makes payment immediately to9 its supplier (cash purchase) while a business that buys goods or services makes payment at a later date to its supplier (credit purchase)

Question 5

What is a Source Document?

Answer 5

A source document provides proof that transactions have occurred

Question 6

What is a Journal?

Answer 6

Details in a source document provide information to be recorded in a journal.

A journal is like a diary; it is a daily record of transactions organised by transactions dates.

Question 7

Elaborate on the second stage of the accounting cycle. (Adjust)

Answer 7

In stage 2 of the accounting cycle, the ending balances of ledger accounts aree listed in a trial balances. Any adjusting entries are recorded in the journal and posted to the ledger.

Question 8

Elaborate on the third stage of the accounting cycle. (Report)

Answer 8

In stage 3 of of accounting cycle, Bases on the adjusted trial balance, the financial statements are prepared. Reports are prepared at least once in a financial year.

Question 9

Elaborate on the fourth stage of the accounting cycle. (Close)

Answer 9

In stage 4 of the accounting cycle, After the financial statements are finalised, income, expenses, income sumary, drawings and dividends accounts are closed by first passing journal entires before being posted to the ledger.
Accounts are closed once at the end of teh financial year.

Question 10

What is the purpose of a Source documents

Answer 10

A source document provides evidence (objectivity theory) to capture occurrence of a transaction. The transaction is recorded at the original cost that it occurred (historical cost theory)

The source document contains the details of a business transaction that are needed for recording.

Question 11

What are the different types of source documents?

Answer 11

Recipt
Remitance advice
Invoice
credit note

Question 12

What are the different types of source documents?

Answer 12

Recipt
Remitance advice
Invoice
credit note
debit note
payment voucher
Bank statement.

Question 13

Elaborate on the purpose of a Recipt (Source Document)

Answer 13

A recipt acknowledges payment received from customers immediately after the business has sold goods or provided services.

Question 14

Elaborate on the purpose of a Remittance advice. (Source document)

Answer 14

A remittance advice Informs credit supplier that payment by cheque has been made for a specific invoice.

Question 15

Elaborate on the purpose of a invoice. (Source document)

Answer 15

Informs credit customers of the amount owed after the business sold goods or provided services on credit.

Question 16

Elaboreate on the purpose of a credit note. (Source document)

Answer 16

Reduces the amount owed by credit customers that were previously overcharged or after goods were returned

Question 17

Elaborate on the purpose of a debit note. (Source document)

Answer 17

Increases the amount owed by credit customers who were previosuly undercharged.

Question 18

Elaborate on the purpose of a Payment voucher. (Source document)

Answer 18

Processes payment to credit suppliers:

• Must be approved by authorised personnel; and
• must be supported by original supplierś invoice.

Question 19

Elaborate on the purpose of a bank statement. (Source document)

Answer 19

Checks and tallies against the business records of its cash at bank account.