Questions Flashcards
Why should business owners keep accounting records?
-forecasting the future: recording income and expenditure allows a business to anticipate its future
-monitoring and control: enables owners to monitor what actually happens and therefore compared with what was forecasted to happen
-legal requirement:this enables HM Revenue and Customs to collect all amounts due in taxes
Identify 3 external stakeholders and what interest they have in accounting records?
Government: tax
Suppliers: ensure they’re paid on time
Competitors: want to know if a business is profiting more than them/ has higher sales
Local community: assess impact of business on local community issues (eg
providing employment)
Bank: will the org be able to repay borrowings/and interest in accordance with any loan agreement
What is the usefulness of a trial balance as a means of checking the accuracy of the ledgers?
-shows errors and helps you mathematically check everything is correct e.g., error of omission. Can see mistakes and go back and check errors. However, can still have balanced trial balance w/ errors
Why is it important to reconcile cash book and bank statement balances
-acts as a deterrent against frauds because cashier doesn’t do back reconciliation
-to identify errors in cash book it back and rectify them
-cash book can be updated to record online transactions e.g., bank charges
Why would a business owner’s bank require a copy of their year end financial statements
To ensure the company pays the right amount of tax and to provide the public, bank, shareholders and potential investors with accurate info about the company. Also to determine whether it’s a good candidate for a loan.
Explain, using examples, the work carries out by bookkeepers within the financial accounting system
The bookkeeper records day to day financial transactions e.g., maintaining accounting records, checking accuracy of the bookkeeping including trail balances
Explain, using examples, how the work carried out by an accountant differs from that of a bookkeeper
The accountant takes the financial info recorded by the bookkeeper and uses it to ensure that financial reports and statements show a true and fair view of the business
What are advantages of using control accounts
- they act as a check on the accuracy of the posting made in personal ledgers
- they enables some errors to be located quickly
- totals owed by trade receivables and trade payables can be identified quickly
- can be used to check honesty of staff
What are the limitations of using control accounts
Not all errors will be revealed by the preparation of the control account
Explain what the balance is shown as a debit in the business’ records but is shown as a credit in the bank statement
Because the businesses cashbook is from their perspective and it’s an asset while the bank owe that money to the business so it’s credited (liability)
Explain how the purchase ledger control account can be used to verify the balances in the purchases ledger
By balancing the PLCA and the purchase ledger, you can see that the trial balances agree or don’t agree and therefore see if the balance in the purchase lender in correct/ incorrect
Explain why an error of commission would not affect the balancing of a purchase ledger control account
This is because the transaction would have been entered in the wrong account in the purchase ledger but of the right type so individual balances would have been correct
Discuss 3 reasons for accounting for accruals and prepayments in the final accounts
-To ensure that income and expenditure is matched to the period in which it is incurred/earned, rather than the period in which it was paid
-Accruals of income and expenditure are added to the amount paid, whereas prepayments of income and expenditure are deducted from the amount paid. The adjusted figures are used in the profit and loss account
-Prepaid expenditure and accrued income are shown in the current assets in the balance sheet
-Accrued expenditure and prepaid income are shown in the current liabilities in the balance sheet
-Ensures that the correct net profit is calculated for the period, and the balance sheet values are correct.
Give 2 reasons why the cash book and bank statement may differ
-there are timing differences caused by:
- unpresented cheques, ie the time delay between writing out (drawing) a cheque and recording it in the cash book, and the cheque being banked by the payee and being recorded on the bank statement
- amounts not yet credited, ie amounts paid into the bank, but not yet recorded on the bank statement
- the cash book has not been updated with items which appear on the bank statement and which should also appear in the cash book, e.g bank charges
Stare one purpose of cash discounts
