Lesson 1

Question 1

What is the purpose of accounting in a business?

Answer 1

To record and classify accurately the business’ transactions.

Question 2

What types of transactions may a business carry out?

Answer 2

Cash or credit transactions, petty cash, buying goods for resale, selling goods/services, withdrawing money from the bank, paying taxes (VAT).

Question 3

What does VAT stand for?

Answer 3

Value Added Tax.

Question 4

What is the standard rate of VAT in the UK?

Answer 4

20%.

Question 5

What is the reduced rate of VAT charged on?

Answer 5

• Domestic-use fuel
• Mobility aids
• Sanitary products
• Certain repairs to homes
• Energy-saving materials.

Question 6

What goods and services are exempt from VAT?

Answer 6

• Financial services
• Healthcare and funeral plans
• Property, land, and buildings
• Education and training
• Gambling.

Question 7

What is the threshold turnover for VAT registration in the UK?

Answer 7

£85,000 or more.

Question 8

How do businesses calculate VAT owed to HMRC?

Answer 8

By subtracting input VAT from output VAT.

Question 9

Define ‘input VAT’.

Answer 9

Tax paid on purchases.

Question 10

Define ‘output VAT’.

Answer 10

Tax charged on sales.

Question 11

What is a Sole Trader?

Answer 11

The simplest form of business, owned and managed by one person.

Question 12

What are the pros of a Sole Trader business structure?

Answer 12

• Takes all the profits.

Question 13

What are the cons of a Sole Trader business structure?

Answer 13

• Full liability for personal assets
• Not as much flexibility with business expenses.

Question 14

What is a Partnership in business?

Answer 14

A business owned and managed by two to twenty people.

Question 15

What is a Limited Liability Company (LTD)?

Answer 15

A business structure where owners and managers are separate, limiting personal liability.

Question 16

What is the main advantage of a Limited Liability Company?

Answer 16

Limited liability means personal assets are protected from business debts.

Question 17

What is a financial record?

Answer 17

A record of both income and expenses maintained by a business.

Question 18

What is the purpose of financial statements?

Answer 18

To show the performance of a business throughout a year.

Question 19

What is a ‘statement of profit and loss’?

Answer 19

An accounting statement showing income and expenses over a specific period.

Question 20

What is a ‘statement of financial position’?

Answer 20

A statement showing assets, capital, and liabilities of a business.

Question 21

What is a cash book used for?

Answer 21

For receipts and payments of cash and cheques.

Question 22

What is a sales journal used for?

Answer 22

To record credit sales.

Question 23

What is the definition of sales income?

Answer 23

Revenue generated from selling goods or services.

Question 24

What distinguishes cash sales from credit sales?

Answer 24

Cash sales involve immediate payment, while credit sales allow for payment at a later date.

Question 25

What is a credit transaction example?

Answer 25

Tara sells goods to Cathy for £100, with payment due in two weeks.

Question 26

What is bad debt?

Answer 26

An amount owed by a customer that is deemed irrecoverable.

Question 27

What is the role of a business' credit control function?

Answer 27

To manage and regulate credit extended to customers, ensuring timely payments.

Question 28

What is a quotation in business documentation?

Answer 28

A request for the price of goods/services.

Question 29

What is included in a customer order?

Answer 29

Goods/services description, price confirmation, and delivery address.

Question 30

What is a delivery note?

Answer 30

A document confirming the delivery of goods, checked against the order.

Question 31

What is an invoice?

Answer 31

A document requesting payment for goods/services provided.

Question 32

What should be verified when raising an invoice?

Answer 32

It should be compared to the order document and the delivery note.

Question 33

What must be included on the delivery note?

Answer 33

Customer account code, date, signature, print name, and date. ## Footnote These elements are essential for validating the delivery and ensuring proper record-keeping.

Question 34

What is the purpose of comparing the invoice to the order document and delivery note?

Answer 34

To identify any discrepancies. ## Footnote This ensures that the invoiced amount matches the goods supplied and documented.

Question 35

What prompts the customer to pay for goods or services received?

Answer 35

Receipt of the invoice. ## Footnote The invoice serves as a formal request for payment.

Question 36

What information does an invoice typically show?

Answer 36

* Supplier's name * VAT registration number * Invoice code * Date of the invoice * Customer account code * Total price * Trade discount * VAT amount * Gross total * Delivery note number * Receiving customer address ## Footnote Each of these elements is crucial for clarity and compliance in financial transactions.

Question 37

How is the gross amount calculated?

Answer 37

Gross amount = net amount + VAT. ## Footnote The gross amount reflects the total cost including taxes.

Question 38

What does '30 days net' mean?

Answer 38

Payment of the invoice total is due 30 days after the invoice date. ## Footnote This term indicates the payment terms agreed upon.

Question 39

What is the current rate of VAT?

Answer 39

20%. ## Footnote This rate is applicable to most goods and services sold in the UK.

Question 40

What is a credit note?

Answer 40

A document issued to reduce the amount owed by the customer, confirming they owe nothing or less than the original invoice. ## Footnote Credit notes are used when goods are returned or when an error has occurred.

Question 41

What distinguishes a credit note from an invoice?

Answer 41

A credit note is red and includes a credit note number, unlike an invoice. ## Footnote This visual distinction helps customers easily identify the document type.

Question 42

What is a remittance advice note?

Answer 42

A notification from the payer indicating that payment for an invoice has been transmitted. ## Footnote It helps both buyer and seller keep track of outstanding invoices and expected payments.

Question 43

What key elements are included in a remittance advice note?

Answer 43

* Unique remittance advice note number * Supplier code * Invoice number * Credit note number * Amount to be paid ## Footnote These details ensure clarity in the payment process.

Question 44

What is the purpose of a petty cash voucher?

Answer 44

To document minor cash transactions. ## Footnote It is used for small expenses like stationary or train fares.

Question 45

What must accompany a petty cash voucher?

Answer 45

Receipts to prove the expenditure. ## Footnote This is necessary for validation and auditing purposes.

Question 46

What is the purpose of a coding system in an organization?

Answer 46

* Ensure accurate and timely recording of information * Efficient filing and retrieval of documents ## Footnote A coding system streamlines operations and enhances organizational efficiency.

Question 47

What are the types of coding systems mentioned?

Answer 47

* Numeric * Alphabetical * Alpha-numeric ## Footnote Each type serves different organizational needs for document management.

Question 48

How is a numeric coding system structured?

Answer 48

All documents are given a sequential code number. ## Footnote This method allows for easy tracking of documents in chronological order.

Question 49

What is an example of an alpha-numeric coding system?

Answer 49

Supplier codes like WEL001 for Wellington Ltd and WEL002 for Wells co. ## Footnote This system combines letters and numbers to facilitate easier identification.