72 Questions Flashcards
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60
Why are trade discounts not recorded in the books?
Trade discounts are not recorded in the books because they are reductions in the selling price and do not affect the financial statements.
## Footnote
Trade discounts are typically offered to encourage bulk purchases or as part of a pricing strategy.
61
Describe two differences between cash and trade discounts.
* Cash discounts are reductions offered to encourage early payment of invoices.
* Trade discounts are reductions off the list price and are typically not recorded in the accounts.
62
What is the difference between a two column and three-column cash book?
A two-column cash book records cash and bank transactions, while a three-column cash book includes an additional column for discounts allowed.
## Footnote
The three-column cash book allows for easier tracking of discounts given and received.
63
Identify and describe the 6 errors not detected by a trial balance.
* Errors of omission: Transactions not recorded.
* Errors of commission: Incorrect amounts recorded in the correct account.
* Errors of principle: Transactions recorded against accounting principles.
* Compensating errors: Two errors that cancel each other out.
* Errors of original entry: Wrong figure entered in the books.
* Reversal of entries: Entries made in the wrong side of the account.
64
Identify and describe the 5 errors detected by a trial balance.
* Arithmetical errors: Mistakes in addition or subtraction.
* Errors of transposition: Digits switched in recording.
* Errors of duplication: Entries made twice.
* Errors in carrying forward: Incorrectly carried balances.
* Errors of omission: Transactions missing from records.
65
Describe two uses of the trial balance.
* To ensure that the totals of debits and credits are equal.
* To prepare financial statements by summarizing account balances.
66
What labels would you put on the discounts allowed and discounts received?
* Discounts allowed: Expense account.
* Discounts received: Income account.
67
Identify the three ledgers and explain their role.
* Sales ledger: Records all sales transactions and amounts owed by customers.
* Purchase ledger: Records all purchase transactions and amounts owed to suppliers.
* General ledger: Contains all other accounts, including assets, liabilities, and equity.
68
What are the 6 books of original entry? Explain their purposes.
* Journal: Records all transactions in chronological order.
* Sales day book: Records all credit sales.
* Purchase day book: Records all credit purchases.
* Cash book: Records all cash transactions.
* Petty cash book: Records small cash expenses.
* Returns day book: Records goods returned by customers.
69
Define and identify 6 source documents.
* Invoice: Document requesting payment for goods or services.
* Receipt: Proof of payment received.
* Credit note: Document issued for returned goods or overpayments.
* Debit note: Document requesting payment for underpayments.
* Bank statement: Record of transactions in a bank account.
* Purchase order: Document requesting goods from a supplier.
70
Define cost of sales.
Cost of sales refers to the direct costs attributable to the production of the goods sold by a company.
## Footnote
It includes expenses like materials and labor directly used in production.
71
What would capital be if assets are £12,500 and liabilities £1,800?
Capital would be £10,700.
## Footnote
Capital is calculated using the accounting equation: Assets - Liabilities.
72
What is the accounting equation?
The accounting equation is: Assets = Liabilities + Equity.
73
Explain the difference between current and non-current liabilities.
* Current liabilities: Obligations due within one year.
* Non-current liabilities: Obligations due after one year.
74
Why is a bank interested in the accounts of a business?
A bank is interested in the accounts of a business to assess its creditworthiness and ability to repay loans.
75
Define a stakeholder and name 2 internal and 2 external.
A stakeholder is any individual or group affected by a business's operations.
* Internal stakeholders: Employees, management.
* External stakeholders: Customers, suppliers.
76
State 2 reasons why financial statements are prepared.
* To provide information to stakeholders about the financial performance.
* To comply with legal and regulatory requirements.
77
Name the 5 stages of the accounting process.
* Identification of transactions
* Recording in books of original entry
* Posting to ledgers
* Preparing trial balance
* Preparing financial statements.
