topic2 the accounting equation, double entry bookkeeping and sales tax

Question 1

what is the accounting equation

Answer 1

assets= equity(capital) + liabilities
OR
equity(capital)= assets - liabilities

Question 2

why is the accounting equation useful

Answer 2

-SFP(statement of financial position) present info via accounting equation
-use this fundamental concept when looking at double entry bookkeeping
-useful if we have incomplete records

Question 3

traditional bookkeeping system

Answer 3

-transactions, data sources
-books of prime entry, day books
-ledger accounts
-trial balance
-year end adjustments and close off ledger accounts
-financial statements

Question 4

quotation

Answer 4

-quantity and details of goods required
-establish price from various suppliers

Question 5

purchase order(PO)

Answer 5

-details of supplier, name, address, quantity and details of goods- required and price, terms and conditions of delivery payment
-sent to supplier as request for supply

Question 6

sales order

Answer 6

-quantity and details of good required and price
-sent to stores/ warehouse for processing order

Question 7

goods despatch note

Answer 7

-details of supplier, quantity and description of goods
-provided by supplier, checked with goods received and PO

Question 8

goods received note

Answer 8

-quantity and description of goods
-produced by company receiving the goods as proof of receipt

Question 9

invoice

Answer 9

-name/address of supplier and customer, details of goods e.g. price
-issued by supplier as a request for payment , sales invoice for seller purchase invoice for buyer

Question 10

credit/debit note

Answer 10

-details of supplier and details of goods returned
-issued by supplier when goods are returned, debit note for seller, credit note for buyer

Question 11

statement

Answer 11

-details of all invoices, debit/credit notes, receipts or payments on a customer account
-issued by a supplier to advise customers of activity on their account

Question 12

remittance advice

Answer 12

-method of payment, invoice number, account number, date etc.
-sent to supplier with, or as notification of payment

Question 13

receipt

Answer 13

-details of payment received
-issued by the seller indicating payment received

Question 14

payment

Answer 14

-details of payment made
-issued by buyer indicating payment made

Question 15

day books

Answer 15

-sales day book(sales on credit)
-purchases day book(purchases on credit)
-sales returns day book(returns of goods sold on credit)
-purchase returns day book(returns of goods bought on credit)
-cash book(all bank transactions)
-petty cash book(all petty cash transactions)
-journal(all transactions recorded elsewhere)

Question 16

bookkeeping in todays society

Answer 16

-modern day organisations use computerised accounting systems, transactions are usually keyed directly into ledgers by passing books of prime entry
-however some books still kept manually like cash book, petty cash book and journal

Question 17

there are three ledgers what are they?

Answer 17

-receivables(sales): individual credit customers accounts
-payables(purchase): individual credit suppliers accounts
-general(nominal): all other double entry accounts

Question 18

VAT

Answer 18

tax on final consumer of a product

Question 19

sales tax

Answer 19

-sales tax charged on sales(output tax) and paid on purchases(input tax)
-the difference between the output tax collected and the input tax paid out is payable to or receivable from the tax authority
-output tax greater than input tax= liability
-input tax greater than output tax=asset

Question 20

business registered for VAT

Answer 20

-bank or receivables ledger will be shown GROSS which means including VAT
-sales tax must be accounted for seperately as this is payed to tax authority

Question 21

calculating VAT

Answer 21

-gross/inclusive of VAT:
-sales including VAT:
price x 20/120 (OR DIVIDE BY 1.2 gets net price)
-net/exclusive of VAT
-sales excluding VAT: price x 20/100 (OR MULTIPLY BY 1.2 gets gross price)