Sources and recording of data flashcards

Topic 1: Sources and recording of data

The accounting equation, and why capital sits with liabilities

Assets = Capital + Liabilities. Under the business entity concept the business is separate from its owner, so capital is an amount the business owes back to the owner.

DEAD CLIC

Debit: Expenses, Assets, Drawings. Credit: Liabilities, Income, Capital. These are the sides on which each type of account increases.

Goods are bought on credit from Khan for $500, then $80 are returned. Entries and Khan’s balance?

Dr Purchases 500, Cr Khan 500. Dr Khan 80, Cr Purchases returns 80 (never credit Purchases). Khan’s balance: $420 credit, the amount still owed.

Invoice

The source document for a credit sale or purchase.

Credit note and debit note

Credit note: records goods returned. Debit note: a request for a credit note.

Receipt, cheque counterfoil and paying-in slip

Receipt: a payment made or received. Cheque counterfoil: a payment by cheque. Paying-in slip: money banked.

Statement of account

A summary sent to a credit customer.

What do the sales, purchases, sales returns and purchases returns journals record?

Sales journal: credit sales. Purchases journal: credit purchases. Sales returns journal: returns inwards. Purchases returns journal: returns outwards.

Cash book, petty cash book and general journal: what each records

Cash book: all cash and bank transactions. Petty cash book: small cash payments. General journal: everything else, such as opening entries, corrections and non-current assets bought on credit.

Sales ledger, purchases ledger and general (nominal) ledger

Sales ledger: personal accounts of credit customers (trade receivables). Purchases ledger: personal accounts of credit suppliers (trade payables). General (nominal) ledger: all other accounts.

The imprest system, and why it is a control

A fixed petty cash float is restored each period by reimbursing exactly what was spent, so the claim must equal the total of the vouchers. A difference signals an error or a missing voucher.

Where are cash sales recorded? Why not the sales journal?

In the cash book. Only credit sales of goods go in the sales journal; putting cash sales there is the standard error.