Key Terms

Question 1

What is inventory?

Answer 1

Raw materials or items for resale.

Question 2

What is duality?

Answer 2

When two things happen. (e.g. paying and receiving)

Question 3

What are the three different types of business?

Answer 3

Sole Trader
Partnership
Limited Liability Company

Question 4

What is a sole trader?

Answer 4

This means that only one person owns the company. There is no difference between personal assets and business assets.

Question 5

What is an asset?

Answer 5

What you own.

Question 6

What is liability?

Answer 6

What you owe.

Question 7

What is a partnership?

Answer 7

When two or more people own the business.

Question 8

What is a limited liability company?

Answer 8

It is owned by shareholders whose liability is limited to the amount invested in shares.

Question 9

What does the right side of a ledger show?

Answer 9

Amounts credited to the account.

Question 10

What does the left side of a ledger show?

Answer 10

Amounts debited to the account.

Question 11

What is petty cash?

Answer 11

Loose notes and coins.

Question 12

What does cash at bank mean?

Answer 12

Money in your bank account. (the digital number)

Question 13

What does Dr mean?

Answer 13

Debit

Question 14

What does Cr mean?

Answer 14

Credit

Question 15

What is a ledger?

Answer 15

A big book split into pages or ‘accounts’.

Question 16

What is an income statement?

Answer 16

Profit loss. A statement that shows our performance in businesses sales, expenses and profits.

Question 17

What is a statement of financial position?

Answer 17

A record of our assets and liabilities.

Question 18

What type of discount does not need to be recorded in a ledger?

Answer 18

Trade

Question 19

What is trade receivable?

Answer 19

Amounts owed by customers.

Question 20

What is trade payable?

Answer 20

Amounts owed to customers.

Question 21

How do we record a trade discount?

Answer 21

Record the amount after the discount has been taken off. Do not record the original amount unless necessary.

Question 22

What is the cash discount/early settlement payment?

Answer 22

Discount for early payment.

Question 23

What is a non-current asset?

Answer 23

An asset bought on credit for the long term in a business.

Question 24

What is Capital?

Answer 24

The money or supplies used to start a business.

Question 25

What is gross profit?

Answer 25

Sale minus the cost of sales.

Question 26

What is a net asset?

Answer 26

The net value of the company.

Question 27

What are books of prime entry used for?

Answer 27

Listing all transactions of a similar nature before we post them into a double entry book keeping system (a ledger). They are just a list, not an actual part of the double entry book keeping system.

Question 28

What are the six different books of prime entry?

Answer 28

``` Sales Day Book Sales Returns Day Book Purchases Day Book Purchase Returns Day Book Cash Book Journals ```

Question 29

What is a sales Day Book?

Answer 29

This is a book of prime entry. It records sales and is produced from the invoices we send to customers.

Question 30

What is a sales return day book?

Answer 30

This is a book of prime entry. It records sales returns and is produced from the credit noted that we send to customers.

Question 31

What is a purchase day book?

Answer 31

It is a book of prime entry. It records our purchases and is produced from the invoices we receive from suppliers.

Question 32

What is a purchase returns book?

Answer 32

It is a book of prime entry. It records our purchase returns and is produced from the credit notes we receive from suppliers.

Question 33

What is a purchase order?

Answer 33

A document we send to our supplier requesting goods.

Question 34

What is a credit note?

Answer 34

It is received when goods are returned to a supplier or we send when goods are returned.

Question 35

What is an invoice?

Answer 35

It is sent with goods that are sold.

Question 36

What is a trial balance?

Answer 36

A list of all the balances extracted from the ledgers at a certain date. We can check that the credits and debits balance.

Question 37

What is an error of omission?

Answer 37

Miss out an entry completely.

Question 38

What is an error of commission?

Answer 38

An entry posted to the wrong account but the same class or type of account e.g. gas instead of electricity.

Question 39

What is error of principle?

Answer 39

An entry posted to the wrong account and to a different type or class e.g. revenue expenditure vs. capital expenditure.

Question 40

What is an error of original entry?

Answer 40

When an entry is entered into a book of prime entry incorrectly.

Question 41

What is a complete reversal of entry?

Answer 41

Debits and credits the wrong way round.

Question 42

What is a compensating error?

Answer 42

Errors that cancel each other out.

Question 43

What is a subsidiary book?

Answer 43

A book of prime entry.

Question 44

What is carriage inwards?

Answer 44

Cost of delivery of purchases.

Question 45

What is carriage outwards?

Answer 45

A normal expense e.g. cost of delivery

Question 46

What are return inwards?

Answer 46

Sales returns.

Question 47

What are return outwards?

Answer 47

Purchase returns.

Question 48

What is inventory?

Answer 48

Stock