Unit 2 Chapter 13: Accounts payable for a trading business

Question 1

Credit Terms

Answer 1

The number of days a credit customer has to pay the balance owing, including the number of days to earn a settlement discount and percentage discount offered for early payment

Question 2

Explain the term Credit transaction

Answer 2

The exchange of inventory with the promise of cash at a later date

Question 3

Identify the source document used to verify a credit transaction

Answer 3

Invoice

Question 4

How to distinguish between a sales invoice and a purchase invoice

Answer 4

1. Identify the business for whom the accoutns are being kept
2. If the business is at the top of the invoice, it is a sales invoice.
   If the business is named in the middle of the invoice, the document is a purchase invoice and the transaction is a credit purchase

Question 5

Referring to two qualitative characteristics, explain the importance of source documents in the accounting process

Answer 5

Verifiability and Faithful Representation

Verifability is the ability of different independent and knowledgeable observers to reach a consensus whether a particular depiction of events in faithfully represented, and is maintained through the retention of source documents used in the transaction,

and ensures that all financial information is without bias and free from error.

Question 6

Why should a trading business include ethical considerations when purchasing inventory

Answer 6

The decisions the business owner takes can have financial and non-financial; ramifications.
Customers may be unwilling to purchase unethical items.
There may be an advantage in purchasing inventory ethically, with customers more willing to purchase these items (and sometimes at a higher price) from an honest and ethical business

Question 7

Explain the role of the purchases journal for a trading business

Answer 7

An accounting record that summarises all transactions involving the purchase of materials or supplies on credit

Question 8

Identify the source document used to verify all transactions in the purchases journal

Answer 8

Purchase invoice

Question 9

Explain the effect of GST on Credit purchases on the valuation of inventory

Answer 9

The inventory column records the value of the cost price of inventory that has been purchased, excluding GST.

Question 10

Explain the effect of GST on Credit Purchases on GST Payable

Answer 10

Just as GST paid to suppliers will be forwarded to the ATO by the supplier, any GST the business pays or incurs on its own purchases can be deducted form its GST liability.

Question 11

State one reason why the amount recorded in the Accounts payable column is greater than the value of inventory purchased

Answer 11

The Inventory column records the value of the inventory that has been purchased, excluding GST whereas the Accounts Payable column shows the total amount owed to Accounts Payable, calculated by adding together the
value of the inventory purchased and the GST

Question 12

Identify the source documents used to verify cash paid to an Account Payable

Answer 12

Cheque butt

Question 13

Explain why there is no GST to account for when cash is paid to an Account Payable

Answer 13

There is no GST on a payment to an Accounts payable because the GST is recognised and reported at the time the purchase was made and becomes a part of what is owed to Accounts Payable.

The GST has already been recorded in the purchases journal. If it was recorded in the Cash Payments Journal again, the GST would be double-counted

Question 14

State one reason why payments to Accounts Payable are recorded in their own classification column in the Cash Payments Journal.

Answer 14

Those items that occur regularly (possibly daily), such as payments to Accounts payable will get their own classification column

Question 15

Formula to calculate the balance of Accounts Payable at the end of
the Period

Answer 15

Accounts Payable balance at start
+ Credit purchases including GST
– Payments to Accounts Payable
= Accounts Payable balance at end

Question 16

Accounts Payable record

Answer 16

a subsidiary Accounting record that records each individual transaction with each individual Account Payable, and shows
the balance owing to that Account Payable at any point in time

Question 17

Accounts Payable Schedule

Answer 17

a listing of the name and balance of each Accounts Payable record

Question 18

Identify two subsidiary records in which a credit purchase must be recorded

Answer 18

Accounts Payable Records
Accounts Payable schedule

Question 19

Referring to one Qualitative characteristic, explain the purpose of preparing an Accounts Payable Schedule.

Answer 19

Faithful Representation
The total of the Accounts Payable schedule is calculated by adding together the balances of the individual Account Payable’s records. If the transactions have been recorded correctly, this total should match the figure calculated using the Accounts Payable formula