Accounting Chapter 3: Financial Transactions

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Questions and Answers

What best describes the purpose of the petty cash book?

To manage large expenditures for business operations.

To track staff salaries and bonuses disbursed in cash.

To document both payments and receipts, including VAT for petty cash expenses. (correct)

To record only the receipts from petty cash transactions.

Under the imprest system, how is the petty cash amount managed?

It is maintained at a constant amount with regular top-ups based on recorded vouchers. (correct)

It is adjusted based on monthly expenditures reported by employees.

It is topped up to a fixed amount only when expenses exceed receipts.

It is unpredictably adjusted based on anticipated future expenses.

Given an imprest amount of CU250 and total vouchers of CU112 with CU91 remaining, what is the correct calculation for the balance?

CU250 - CU91 = CU159 vouchers needed.

CU250 - CU112 = CU138 cash remaining.

CU250 - (CU112 + CU91) = CU47 unexplained cash difference. (correct)

CU112 + CU91 = CU203, which is less than CU250.

What is a common misconception about transactions recorded in the petty cash book?

Only cash transactions need to be recorded while ignoring VAT. (B) Signup and view all the answers

What does the 'total float' in a petty cash system refer to?

The amount remaining in the petty cash, plus the value of all vouchers issued. (B) Signup and view all the answers

What is the primary purpose of issuing a credit note?

To document the return of goods or overcharges (D) Signup and view all the answers

How does a debit note differ from a credit note?

A debit note requests a credit note, while a credit note is a formal transaction document (D) Signup and view all the answers

What information typically accompanies a sales invoice or credit note?

Value Added Tax (VAT) (C) Signup and view all the answers

Which scenario would likely require the issuance of a credit note?

A customer receives damaged goods and refuses payment (A) Signup and view all the answers

What is an essential characteristic of a credit note?

It contains a 'credit note number' instead of a 'sales invoice number' (B) Signup and view all the answers

Which of the following is NOT true about the purpose of a credit note?

It substitutes for a warranty on sold items (B) Signup and view all the answers

In which scenario would a debit note be issued?

When a business requests a refund for damaged supplies (D) Signup and view all the answers

Which of the following statements about VAT is incorrect?

VAT rates are the same for all types of goods and services (C) Signup and view all the answers

What type of transaction is recorded via electronic banking?

Source documents for all types of transactions (A) Signup and view all the answers

What is one key advantage of using integrated accounting software with electronic banking systems?

Automatic recording of bank transactions in accounting software (B) Signup and view all the answers

How do sophisticated accounting systems utilize AI in transaction processing?

To classify all transactions as either known or unknown (B) Signup and view all the answers

What occurs to transactions classified as 'unknown' in the accounting system?

They are recorded in a suspense account (A) Signup and view all the answers

Which of the following describes a primary function of an exception report?

To identify and investigate unmatched transactions (D) Signup and view all the answers

What is typically required from businesses using software without direct banking system access?

Regular downloading of transaction reports (C) Signup and view all the answers

Which of the following statements about electronic banking is true?

It allows real-time access to bank account information (A) Signup and view all the answers

What should a bookkeeper do once they receive a transaction report from the integrated system?

Check transactions matched against the relevant account codes (D) Signup and view all the answers

What technology is primarily utilized for processing known transactions in advanced accounting software?

Artificial intelligence (C) Signup and view all the answers

What is the purpose of a cash book in traditional accounting practices?

To maintain a detailed log of all business expenses and incomes (A) Signup and view all the answers

What happens to transactions in the suspense account after they are identified?

They are matched to appropriate accounts and recorded (C) Signup and view all the answers

What is the primary purpose of an invoice in a credit transaction?

To serve as a request for payment for goods or services sold on credit (C) Signup and view all the answers

Which of the following is NOT typically included in an invoice?

Payment method used (D) Signup and view all the answers

How are sales invoices usually tracked by a business?

Through sequential numbering (D) Signup and view all the answers

What should invoices match in terms of detail to ensure accuracy?

Delivery notes and purchase orders (B) Signup and view all the answers

Which term refers to the reduction in cost for purchasing over a specified quantity in an invoice?

Bulk discount (B) Signup and view all the answers

What is included in an invoice to help the seller identify payments?

Remittance advice slip (D) Signup and view all the answers

When a business receives a purchase invoice, what does it confirm?

The goods were ordered and received at the right price (B) Signup and view all the answers

What action should be taken for unmatched items in the accounting system?

They require a detailed investigation by the accountant. (A) Signup and view all the answers

Which of the following statements about the cash at bank account is correct?

It includes both electronic transfers and physical cash transactions. (B) Signup and view all the answers

What is the primary purpose of the petty cash book in a business?

To record all payments and receipts made from petty cash. (A) Signup and view all the answers

Under the imprest system, what does the term 'float' refer to?

The set amount of cash that must always be maintained in petty cash. (B) Signup and view all the answers

What must occur after cash transactions are identified as unmatched in the transaction report?

They require manual verification before recording in the cash at bank account. (A) Signup and view all the answers

What do vouchers in the petty cash book represent?

Documentation of payments made from the petty cash. (C) Signup and view all the answers

Which transaction type is not typically recorded in the cash at bank account?

Manual transactions for petty cash. (B) Signup and view all the answers

What is required before amounts in the transaction report can be matched to the accounting system?

Manual checking or suggestions from the system. (A) Signup and view all the answers

When a payment is less than an invoice total due to a discount, what must be investigated?

Whether the discount was authorized and applied correctly. (A) Signup and view all the answers

How are bank interest and charges generally recorded in relation to the cash at bank account?

They are reported directly in the transaction report. (C) Signup and view all the answers

Study Notes

Chapter 3: Recording Financial Transactions

This chapter covers computerised accounting systems, source documents, recording bank transactions, petty cash books, and payroll.
Learning outcomes include identifying information sources, recording transactions, and applying accounting standards.
Syllabus links indicate material developed further throughout the Accounting module and Professional Level Financial Accounting and Reporting.
Examination questions are multiple choice, multi-part, multiple response, and may involve calculations.

1 Computerised Accounting Systems

Most businesses use computerised accounting systems, ranging from simple packages for small businesses to complex systems in larger organisations.
Cloud accounting software is increasingly used.
Accounting systems record, process, and store financial information, enabling businesses to produce relevant, reliable information for stakeholders.
Accounting systems have inputs, processes, and outputs.

2 Source Documents for Recording Financial Transactions

Source documents (e.g., sales orders, delivery notes, purchase orders, goods received notes, invoices, credit notes) evidence business transactions.
These documents detail sales, purchases, payments, debts, and other related financial events.
They are the starting point for recording transactions in the accounting system.

3 Recording Bank Transactions

Businesses have constant access to bank accounts, utilising electronic banking.
Electronic banking allows real-time transaction reports.
Some accounting software is integrated with electronic banking systems, automatically recording transactions.
Transaction reports are used as source documents.
Electronic banking may include bank reconciliation processes in order to track bank transactions and activities.

4 Petty Cash Book

A record of petty cash payments and receipts.
Used to manage small, day-to-day expenses.
Maintains a fixed float amount which is reimbursed periodically from the main bank account.
Petty cash books are used for cash transactions for incidental or small expenditure (eg: postage stamps, taxi fares, etc)
Petty cash is a subset of cash that are kept in the office of the business

5 The Payroll

Records employee wages and salaries.
Provides source documents for payroll expenses.
Includes gross pay, deductions (e.g., taxes, pensions), and net pay.
Employers may also contribute to employee pension schemes.

2.7 Value Added Tax (VAT)

VAT is a sales tax added to most sales invoices.
Calculation and recording of VAT are further details in Chapter 4.

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Explore the essentials of recording financial transactions in this quiz covering computerized accounting systems, bank transactions, and payroll. You'll assess your understanding of source documents and accounting standards vital for effective financial management. Test your skills with multiple-choice and computational questions.