Accounting Chapter: Business Transactions

Questions and Answers

What is the primary characteristic of a cash sale?

It requires a credit note to be issued for documentation.

The business documents the sale without any journal entries.

The customer pays in full at the time of the transaction. (correct)

It involves delayed payment from the customer.

Which statement is true regarding credit sales?

Trade receivables increase when a credit sale is made. (correct)

Credit sales do not require any journal entry.

The customer's debt is recorded as trade payables.

The business receives cash immediately upon the sale.

What must be done for manual journal entries concerning bank transactions?

They are not required for cash transactions.

They can be entered automatically through the sales module.

They are recorded in the trade receivables account.

They must be manually entered because the bank is not integrated. (correct)

What effect does recording a cash sale have on the general ledger?

Cash increases and sales income increases. Signup and view all the answers

What is the journal entry to record a cash purchase?

DR Purchases, CR Cash/Bank Signup and view all the answers

What do you debit when recording a receipt from a customer?

Bank/Cash Signup and view all the answers

In the case of purchase returns, what is credited to account for the reduction in liabilities?

Trade Payables Signup and view all the answers

Which account is affected when the sales return account is utilized?

Sales Signup and view all the answers

What happens to the Purchases account when a credit purchase is made?

It is debited to increase the expense. Signup and view all the answers

Study Notes

Recording Business Transactions

Financial documents reflect the monetary value of business transactions, recorded in ledgers through journal entries.
Integration of sales and purchase modules with the general ledger in computerized accounting systems streamlines data entry.
Bank transactions must be recorded using manual journals as they are not integrated with the general ledger.

Cash and Credit Sales

Cash Sales: Involve sales with immediate payment.
- Journal entry:
  - DR Cash/Bank (Asset increased)
  - CR Sales (Income increased)
Credit Sales: Involve sales with future payment, creating trade receivables.
- Journal entry:
  - DR Trade Receivables (Asset increased)
  - CR Sales (Income increased)

Sales Returns

Sales returns occur when customers return goods due to errors by the business, necessitating credit notes.
- General journal entry for sale returns:
  - DR Sales (Income decreased)
  - CR Trade Receivables (Asset decreased)
- Many businesses may use a separate "Sales Returns" account:
  - DR Sales Returns (Income decreased)
  - CR Trade Receivables (Asset decreased)

Receipts from Customers

Outstanding balances from credit customers require manual journal entries, as banking is not integrated.
- Journal entry for customer receipts:
  - DR Bank/Cash (Asset increased)
  - CR Trade Receivables (Asset decreased)

Cash and Credit Purchases

Cash Purchases: Involve immediate payment to suppliers.
- Journal entry:
  - DR Purchases (Expense increased)
  - CR Cash/Bank (Asset decreased)
Credit Purchases: Involve future payments to suppliers, creating trade payables.
- Journal entry:
  - DR Purchases (Expense increased)
  - CR Trade Payables (Liability increased)

Purchase Returns

Purchase returns occur when goods are returned to the seller, often due to errors.
- General journal entry for purchase returns:
  - DR Trade Payables (Liability decreased)
  - CR Purchases/Expense (Expense decreased)
- Some businesses may credit a separate "Purchase Returns" account for returned purchases.

Description

This quiz focuses on the recording of business transactions, including cash and credit sales, returns, and petty cash transactions. It delves into how these entries are incorporated into financial documents and ledger accounts, considering the use of computerized accounting systems.