Lesson 2 Flashcards
(30 cards)
What are the books of prime entry?
Sales Day Book, Sales Returns Day Book, Cash Book, Purchase Day Book, Purchase Returns Day Book
These are initial records where transactions are first recorded before being posted to ledgers.
What is recorded in the Sales Day Book?
All business invoices to credit customers
This includes invoices for customers who have not yet made payments.
How are invoices transferred after recording them in the Sales Day Book?
Transferred to the general and sales ledger
The frequency of transfer can vary (daily, weekly, or monthly).
What columns are typically included in the Sales Day Book?
- Dates
- Details (Customer names)
- Invoice numbers
- Customer Code
- Total
- VAT
- Net
- Sales Type analysis
The Customer Code may also be referred to as Reference or Folio.
What does the Total column in the Sales Day Book include?
The gross total including VAT
This is the total amount that includes both net sales and VAT.
In the Sales Day Book, how is VAT calculated?
VAT is 20% of the net amount
The gross amount is the net amount plus VAT.
What is the purpose of the Sales Returns Day Book?
Records all credit notes for goods returned by customers
This helps track returns and their impact on net income.
What is recorded in the Cash Book?
Both money received and paid by the business
It is split into cash received and cash paid sections.
What does the debit side of the Cash Book represent?
Money received by the business
This includes cash sales and receipts from credit customers.
What are tangible assets? Give examples.
Physical resources owned by a company
Examples:
* Cash
* Inventory
* Property, Plant, and Equipment (PP&E)
* Office equipment
Tangible assets have measurable value.
What are current assets?
Assets expected to be converted into cash within one year
Examples include cash and accounts receivable.
Define liabilities.
Financial obligations of a business
This includes accounts payable and notes payable.
What does equity represent in accounting?
What is left after subtracting liabilities from assets
It includes owner’s contributions, withdrawals, and retained earnings.
What is the accounting equation?
Assets = Liabilities + Equity
This equation must always balance.
What types of transactions are recorded on the credit side of the Cash Book?
- Purchases made for cash
- Payments to credit suppliers
- Regular expense payments
- Drawings by the proprietor
- Miscellaneous payments
Each type of transaction reflects outflows of cash.
What is the Purchase Day Book used for?
To record invoices received from suppliers for goods/services purchased on credit
Information is later transferred to the general or purchase ledger.
In the Purchase Day Book, what does the total column include?
The gross total including VAT shown on the invoice
This is followed by separate entries for VAT and net amounts.
What is the purpose of the Sales Ledger?
Contains ledger accounts for every credit customer
It helps manage customer invoices and payments.
How is the amount owed by a customer calculated in the Sales Ledger?
Total the left-hand side (invoices) and subtract the total of the right-hand side (payments and credit notes)
This gives the net amount owed.
What is the difference between a general ledger and a subsidiary ledger?
A general ledger summarizes transactions for each account, while a subsidiary ledger tracks individual transactions related to specific accounts
Examples include accounts receivable and accounts payable ledgers.
How do you calculate the amount owed by the customer?
Total the left-hand side and total the right-hand side, then subtract the right-hand side from the left-hand side.
What is the formula for calculating how much is owed?
Debit minus the credit.
What is the total amount owed in the example provided?
£5481
What does the Purchase Ledger represent?
Owed to the supplier and is a liability.
