Sources and recording of data Flashcards
State what is meant by a book of prime entry
the books where transactions (and other entries) are first recorded
State the advantages of preparing books of prime entry
1- to avoid multiple entries in the ledger
2- different books of prime entry can be maintained
by different people
3- Acts as an aid for posting to the ledger by
analysing a transaction into debit and credit
entry
4- Helps to reduce the amount of detail in the
ledger as only totals are posted
5- provides evidence of transactions since they are recorded from source documents
State the purpose of a debit note
issued by the customer to request a reduction in an invoice
name the type of books which the cash book and the purchases journal are examples
book of prime (original) entry
What is the purpose of sending a statement of account of a customer?
1- to inform the customer of the amount due
2- to confirm settlement terms
3- to ensure that no errors have been made by the
customer
Why is no entry made in the accounting records when a statement of account is issued?
a statement of account is not a transaction. it is a summary of the account of the customer in the books of the supplier. it is a reminder to the customer of the amount due.
What are the two functions performed by cash book?
cash book performs as both a ledger account and a prime entry book.
can cash balance have a negative balance?
no. we cannot spend what we do not have.
name the book of prime entry which also functions as a ldger acount.
Cash book
Explain why sophia’s cash book is both a book of prime (original) entry and also part of the ledger.
it is a book of prime entry because it is written up from business documents
it is part of the double entry system ad as it acts as ledger accounts for cash and bank
what is meant by a dishonoured cheque?
a cheque which has been unpaid by the bank
what are the reasons a cheque would/could be dishonoured?
1- drawer has insufficient funds in the account
2- incomplete details on the cheque
3- cheque may be post dated
4- inconsistent details on the chque
State the difference between a bank overdraft and a bank loan
1- a loan is of fixed amount but an overdraft is
of varying amount
2- A loan is for a fixed term but an overdraft may be
paid back any time
3- a loan may require security but an overdraft ma
be unsecure
4- a loan may have a fixed rate of interest but an
overdraft will have variable rate
explain how a bank overdraft can arise
a business has paid our more from the bank than is has paid in
what are the two functions performed by cash book?
1- reduce the number of entries in the main cash
book
2- remove the small cash payments from the main
cash book
3- the work provides training for junior staff
members
Explain the term ‘‘ímprest system’’
at any time the amount paid out d]from the float (represented by vouchers/ receipts) plus remaining cash, must equal to the fixed amount of the float
what is meant by the imprest system in relation to the petty cash book?
at the end of the period the chief cashier will make up the cash remaining so that it is equal to the imprest amount
what are the advantages of the imprest system?
1- chief cashier knows exactly how much is spent in
each month
2- the cash remaining and the vouchers received
should equal the imprest
3- can help reduce fraud
4- the amount of cash can be checked at any time
since the cash in the float plus the total of the
bouchers should equal to the original amount of
the float
5- using the petty cash book means many small
value items are eliminated from being entered in
the main cashbook and the ledgers
6- the task of maintaining the imprest system is
straightforward and can be carried out by a
junior member of the finance department
What types of transactions are entered in the general journal?
1- introduction of capital/opening balances
2- purchase/sale of non-current assets on credit
3- year end transfers
4- correction of errors
5- adjustments
6- bad debts
name the book pd prime entry used to write of bad debts
general journal
State two reasons why a trader should reconcile the cash book balance with the balance shown on the bank statement at the end of each month (advantages of preparing a bank reconciliation)
1- obtain correct bank balance
2- identify the errors on the bank statement
3- identify errors on the bank statement
4- assist in discovering fraud and embezzlement
5- identify amounts not credited by the bank
6- identify cheques not presented
7- identify any stale cheques
what is meant by a bank statement?
a copy of the customers account as it appears in the books of the bank
explain why items are recorded on the opposite side of the cash book to that which they appear on the bank reconciliation statement
the bank statement is a copy of the account of the business as it appears in the books of the bank. this is from the viewpoint of the bank therefore the business depositing money is a creditor of the bank. vice versa.
state whether the cash book balance or the bank statement balance should be shown in [name] statement of financial position, why?
Cash book balance, the statement of financial position would not balance if the bank statement balance was included. Only balances on the book of the business can be included in the statement of financial position.
