Unit 3

Question 1

Name 6 errors that could be found from the trial balance R

Answer 1

Error of commission, error of omission, error of principle, error of reversal, error of original entry & error of compensation

Question 2

What is the error of commission? R

Answer 2

An error of commission is where the correct type of account has been used, however the account within that ledger is incorrect.

Question 3

What is the error of omission? R

Answer 3

An error of omission is when the transaction hasn’t been included in the accounts, hence it being omitted.

Question 4

What is the error of principle? R

Answer 4

An error of principle is where the posting is made to the wrong type of account.

Question 5

What is error of reversal? R

Answer 5

An error of reversal is when the debits and credits have been entered the wrong way around.

Question 6

What is the error of original entry? R

Answer 6

An error of original entry is where the amount had been incorrectly entered when first posted to the accounts.

Question 7

What is the error of compensation? R

Answer 7

An error of compensation relates to an error on both the debit and credit sides, that just happens to be for the same amount.

Question 8

What are 5 examples of entries in the journal? R

Answer 8

Opening balances, correction, acquisition & disposal, payroll transactions and debts

Question 9

What are 8 documents that need to be retained?

Answer 9

Bank statements
Cheque stubs
Paying in slips
Annual interest summaries
BACS payments records
Employee payments
Pass books
Evidence of personal drawings for a sole trader

Question 10

What are 3 forms of payment that are available immediately for a business? R

Answer 10

Cash deposited to the bank, Bank transfers received by ‘faster payments’ & Bank transfers

Question 11

What are 3 payments that take some time to be available to the business? W

Answer 11

Cheques - which take approximately three days to clear.
BACS payments which take three days to be credited to the receiving bank account from leaving the paying bank account.
Credit and debit card payments which may take some time to be transferred by the card processing service provider used.

Question 12

What are 3 payments that are costly to a business? W

Answer 12

Depositing cash to banks, Card payments & Payment transfer services

Question 13

4 reasons that could lead to a difference in the bank statement & cash book when doing a bank reconciliation R

Answer 13

Direct interest payments from bank, Timing differences, Refused cheque & Direct payments by customer

Question 14

Difference between a standing order & direct debit? R

Answer 14

A standing order is a regular payment that you can set up to pay others or transfer to your other bank accounts. You can amend or cancel the standing order as and when you like. A Direct Debit can only be set up by the organisation to which you’re making the payment.

Question 15

What are 6 things a bank can provide its customers with? W

Answer 15

Debit card, monthly statement, mortgage, paying in slip, cheque book & credit card.

Question 16

One way to choose whether to use a standing order or direct debit for a payment R

Answer 16

If it is for a recurring transaction with the same amount each time then use a standing order. If it’s recurring for varying amounts then use direct debit

Question 17

For small purchases in real life what is the best payment method? R

Answer 17

Cash/petty cash

Question 18

For online payments what is the best payment method? R

Answer 18

Debit/credit card

Question 19

For payments of large sums of money like new property or wages what is the best payment method? R

Answer 19

Bank transfer

Question 20

When making payments to people with on a credit account what is the best payment method? R

Answer 20

Cheque