Set 3

Question 1

What is an error of principle?

Answer 1

An error of principle is when an entry that should have been recorded in an asset account has been recorded in an expense account (or vice versa).

Question 2

What is an error of commission?

Answer 2

An error of commission is when an entry has been posted to the wrong account.

Question 3

What is an error of omission?

Answer 3

An error of omission is a transaction that has not been recorded in the books of the company.

Question 4

What is an overdraft?

Answer 4

An overdraft is a negative balance at the bank (i.e. the company owes money to the bank).

Question 5

If a bank statement is showing a debit balance for a company, does it mean that the company has money at the bank or that the company is overdrawn?

Answer 5

A debit balance on a bank statement means that the company is overdrawn.

Question 6

What is an uncleared lodgement (or lodgement not yet credited)?

Answer 6

An uncleared lodgement is a receipt that has been entered in the cash book but has not yet appeared on the bank statement.

Question 7

What is an outstanding (unpresented) cheque?

Answer 7

An outstanding cheque is one that has been entered in the cash book but has not yet appeared on the bank statement.

Question 8

What is the purpose of a bank reconciliation?

Answer 8

The bank reconciliation is done to check the accuracy of the entries in the cash book (and the accuracy of the bank statement).

Question 9

What are we trying to achieve when we reconcile the receivables ledger control accounts with the receivables ledger?

Answer 9

The balance on the receivables ledger control account should be the same as the total of all the balances on the individual accounts in the accounts receivables ledger. If they are not the same then there must be an error.

Question 10

What is the payables ledger control account?

Answer 10

The payables ledger control account is an account in the general (nominal) ledger recording the total amount owing to suppliers.

Question 11

What is the receivables ledger control account?

Answer 11

The receivables ledger account is an account in the general (nominal) ledger recording the total amount owing from customer.

Question 12

What is the general (or nominal) ledger?

Answer 12

The general ledger contains all the accounts necessary to produce the financial statements. The double entry is made between these accounts.

Question 13

What is recorded in the accounts payable ledger (payables ledger)?

Answer 13

The accounts payables ledger records the amounts owing to each individual supplier.

Question 14

What is recorded in the accounts receivable ledger (receivables ledger)?

Answer 14

The accounts receivables ledger records the amounts owing by each individual customer.

Question 15

What is recorded in the sales day book (or sales journal)?

Answer 15

The sales day book records all sales made on credit.

Question 16

What is recorded in the purchase day book (or purchases journal)?

Answer 16

The purchase day book records all purchases made on credit.

Question 17

What is meant by a refund?

Answer 17

A refund is a repayment of cash previously paid. It can occur for various reasons – e.g. the customer overpaid by mistake; the customer returned goods for which they had already paid.

Question 18

What is a credit note?

Answer 18

A credit note is a ‚negative invoice‘ and is prepared by the supplier to cancel a previous invoice (or part of an invoice) because of goods having been returned or because of an overcharge on the invoice.

Question 19

What is a statement?

Answer 19

A statement is prepared by the supplier and summarises the amount owing by the customer.

Question 20

What is the difference between a purchase invoice and a sales invoice?

Answer 20

Both are prepared by the supplier of the goods or services and detail the amount of payment being requested. The supplier calls it a sales invoice, the customer calls it a purchase invoice.

Question 21

What is a goods received note?

Answer 21

A goods received note is prepared by the company receiving the goods, and lists the quantity and description of the goods being received.

Question 22

What is a goods delivery note?

Answer 22

A delivery note is provided by the supplier and lists the quantity and description of the goods being supplied.

Question 23

What is meant by a part-exchange agreement when a non-current asset is disposed of?

Answer 23

A part-exchange agreement is where an old asset is provided in part payment for a new asset, the balance of the cost of the new asset being paid in cash.

Question 24

When using the straight-line method of depreciation, what is meant by the term residual value?

Answer 24

The residual value of an asset is the estimated disposal value at the end of its useful life.

Question 25

What is the reducing balance method of depreciation?

Answer 25

A reducing amount of depreciation is charged each year (a fixed percentage of the net book value).

Question 26

What is an meant by an error of original entry?

Answer 26

An error of original entry is when the correct double entry has been made, but where the amount is wrong.

Question 27

What are compensating errors?

Answer 27

Compensating errors are two or more errors when the net effect is zero.