Flashcards · 7707 · Topic 2

Sources and recording of data flashcards

22 cards on Topic 2, subtopics 2.1 to 2.3. Pick a subtopic or study them all.

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The double entry rule: Every transaction has one debit and one credit of the same amount, in two different accounts. Each entry names the other account.
Which accounts increase on the debit side, and which on the credit side?: Debit side: assets, expenses and drawings. Credit side: liabilities, capital and income (such as sales). A decrease goes on the opposite side.
Goods are sold on credit. Which account is debited and which credited?: Debit the customer’s account (in the sales ledger). Credit Sales.
A customer returns goods. Which account is debited and which credited?: Debit Sales returns. Credit the customer’s account.
The owner takes money from the bank for personal use. Debit? Credit?: Debit Drawings. Credit Bank. Drawings are never an expense.
A non-current asset is bought on credit. Debit? Credit?: Debit the non-current asset account. Credit the supplier’s account.
Balancing an account: Total both sides; put the difference on the smaller side as Balance c/d so both totals agree; then show it below the totals on the other side as Balance b/d.
Sales ledger, purchases ledger and nominal (general) ledger: what each holds: Sales ledger: credit customers’ accounts. Purchases ledger: credit suppliers’ accounts. Nominal (general) ledger: all other accounts.
What does a credit balance on the bank account mean?: The account is overdrawn: the business owes the bank (a liability). A debit balance is cash at bank.

Invoice, credit note and debit note: Invoice: the bill for goods supplied on credit. Credit note: reduces the amount owed, for example after a return. Debit note: a request for credit, or an extra charge.
Statement of account: A periodic summary, sent by the seller, of one customer’s account. It is used to check the ledger account.
Receipt, cheque counterfoil and paying-in slip: Receipt: proof that money was handed over. Cheque counterfoil: the payer’s stub, used for cash book payments. Paying-in slip: the depositor’s record of money paid into the bank.
Trade discount compared with cash discount: Trade discount: taken off the list price on the invoice; only the net figure is recorded. Cash discount: a reward for paying early, recorded in the cash book when the money moves.
25 items at $40 less 20% trade discount, with 2.5% cash discount for prompt payment. Invoice value and cash received if paid in time?: Gross 1,000 − trade discount 200 = invoice $800 (entered in the sales journal). Cash discount 2.5% × 800 = $20, so $780 is received.
Why is a bank statement a useful source document?: It is the bank’s own record of the account. It shows items such as charges, interest and direct debits that may not yet be in the cash book.

Which book of prime entry records: credit sales, credit purchases, returns inwards, returns outwards?: Credit sales: sales journal. Credit purchases: purchases journal. Returns inwards: sales returns journal. Returns outwards: purchases returns journal.
What is recorded in the general journal?: Anything that fits no other book: non-current assets bought on credit, opening entries and the correction of errors.
The dual function of the cash book: It is both a book of prime entry and the ledger account for cash and bank, so there is no separate cash or bank account in the ledger.
Posting the sales journal: Debit each customer’s account with the invoice amount. Credit the Sales account with the total.
How are the cash book discount columns posted?: Total of discount allowed: debit Discount allowed. Total of discount received: credit Discount received.
Contra entry in the cash book: Cash paid into the bank (or drawn out of it) is entered on both sides of the cash book, in the cash and bank columns, and posted nowhere else.
Imprest system: a float of $80 and vouchers totalling $61.30. How much is restored, and what is left?: Cash left is 80 − 61.30 = $18.70. The top-up equals the amount spent, $61.30, which brings the float back to $80.