AAT Level 2

Question 1

Accounting Equation

Answer 1

Assets - Liabilities = Capital

Question 2

Cash Sale

Answer 2

The sale and the payment happen at the same time.
E.g. Cash/card/cheque.
A till receipt is produced

Question 3

Credit Sale

Answer 3

The seller provides the buyer with the good/service but payment is not made until later.
An invoice is issued.

Question 4

The risk of credit sales

Answer 4

• Customer may not pa at the appropriate time

- Customer may not pay at all

Question 5

The Six Stages of the sales process in order

Answer 5

• Quotation
• Customer order
• Delivery Note
• Invoice
• Credit note (if goods are damaged / returned)
• Remittance advice note

Question 6

Why is coding used

Answer 6

• So information can be recorded accurately and in a timely manner
• Documents can be filed and retrieved efficiently

Usually coding is alpha-numeric

Question 7

What are the books of prime entry

Answer 7

• Sales daybook
• Sales returns daybook
• Purchases daybook
• Purchases returns daybook
• Cashbook
• Petty cashbook
• Discounts allowed daybook
• Discounts received daybook

Question 8

What is the Sales daybook

Answer 8

Lists all the business’s invoices sent to credit customers

Question 9

Sales returns daybook

Answer 9

Records credit notes given to customers when products are returned.
Can also be recorded as a negative amount on the sales daybook.

Question 10

What is recorded on the cashbook debit side

Answer 10

Money that is received by the business

Question 11

What is recorded on the cashbook Credit side

Answer 11

Money paid out by the business

Question 12

What is the two column cash book

Answer 12

Two columns:

• Cash: records amounts received or paid by CASH only
• Bank: Records amounts paid/received through the bank e.g. cheque / BACS etc.

Question 13

Cashbook - and VAT

Answer 13

When credit customers pay, No VAT is recorded in the Cashbook as this has previously been recorded.

Question 14

Purchases daybook

Answer 14

Records purchase invoices received

Question 15

Purchases Returns daybook

Answer 15

Records goods the business has purchased and then returned due to them being faulty etc.

A list of credit notes received

Question 16

Sales Ledger

Answer 16

A record that contains ledger accounts for every credit customer.
Customer ledger account shows how much each credit customer owes the business

Question 17

Purchase Ledger

Answer 17

A record containing ledger accounts for every credit supplier.
Ledger account shows how much the business owes that supplier.

Question 18

Sales Ledger Debit and Credits

Answer 18

Left side (Debit) - Invoices are recorded increasing the amount owed by the customer.

New invoices are debited to the Sales Ledger account.

Right side - (Credit) - Credit notes, payments, Prompt payment discounts are recorded. All decreasing how much the customer owes. Credits the account.

Question 19

Purchase Ledger Debits and Credits

Answer 19

Left side (Debits) - Credit notes, prompt payment discounts, payments are recorded, decreasing how much the business owes the supplier.

Right side (Credit) - Record invoices increasing how much we owe the supplier.

Question 20

What is the standard rate of VAT

Answer 20

20%

Question 21

What can businesses claim VAT back on

Answer 21

Purchases

Question 22

The difference between Net and Gross total

Answer 22

Net - before VAT

Gross - after VAT

Question 23

What are the three discounts

Answer 23

• Trade
• Prompt Payment (recorded in discounts allowed / received daybook)
• Bulk

Question 24

Which discount is not shown on the invoice

Answer 24

Prompt payment - is issued as a credit note as a business has to decide whether to pay quicker and take the discount.

Question 25

Assets

Answer 25

Items the business owns e.g. cash, machines, amounts owed to the business by credit customers.

Question 26

Liabilities

Answer 26

Amounts the business owes to other parties e.g. loans, overdraft, amounts owed to credit customers

Question 27

Income

Answer 27

Main source of income is sales

Question 28

Expenses

Answer 28

Main source of expenses is purchases

Question 29

What does a Debit represent

Answer 29

- Increase in Asset - Increase in Expenses - Increase in Drawings - Decrease in Liabilities, Income or Capital DEAD CLIC

Question 30

What does a credit represent

Answer 30

- Increase in liability - Increase in income - Increase in capital - Decrease in expenses, assets or drawings

Question 31

Cash transactions double entry

Answer 31

Cash payment = Credit (Asset is decreasing, matching debit entry is in the new asset / expense account) Cash receipt = Debit (Asset is increasing, matching credit entry is made in the sales account)

Question 32

Double entry for credit