Accounting System for Sales and Purchases

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Questions and Answers

What action does Farida take once the delivery of the collars is made to Pierre?

She waits for Pierre to confirm receipt of the goods.

She cancels the order.

She generates a sales invoice and updates her accounting records. (correct)

She contacts Pierre to ask for payment.

Which of the following best describes the relationship between Farida and Pierre in this scenario?

Farida is an employee and Pierre is her employer.

Farida is a wholesaler and Pierre is a sole trader. (correct)

Farida is a consultant and Pierre is a client.

Farida is a retailer and Pierre is a customer.

What is the significance of the 60 days credit terms offered to Pierre by Farida?

Pierre has 60 days to pay starting from the delivery date. (correct)

Pierre can return the goods within 60 days without payment.

Pierre has 60 days to pay after placing the order.

Pierre must pay immediately upon receipt of goods.

How does Farida's accounting system react to the creation of the sales invoice?

It records the sale and updates accounts receivable. Signup and view all the answers

What is the purpose of the delivery note that was sent along with the collars?

To detail the number of collars ordered and the delivery details. Signup and view all the answers

What is the primary reason businesses use their own referencing system for transactions?

To help track individual transactions more effectively Signup and view all the answers

What accounting entry does Pierre make when he pays Farida?

Dr Trade payables $500, Cr Bank $500 Signup and view all the answers

After Pierre updates his accounting records for the payment, what information remains in the records regarding total purchases?

Total purchases will still show $500 without any amounts owed Signup and view all the answers

What must Pierre ensure when he makes the entry in the accounting system?

That he utilizes the function to allocate payments to individual supplier accounts Signup and view all the answers

Which financial statement would be affected by Pierre’s payment to Farida?

Balance sheet showing reduced cash and payables Signup and view all the answers

What is recorded in the general ledger when an invoice is issued for a sale?

Cr Revenue $500 Signup and view all the answers

Which account shows a nil balance after Pierre's payment is recorded?

Trade receivables Signup and view all the answers

What type of accounts are created for each individual customer to track transactions?

Subsidiary ledgers Signup and view all the answers

When Pierre makes a payment, which journal entry is recorded in Farida's accounting system?

Dr Bank $500, Cr Trade receivables $500 Signup and view all the answers

What is the effect on the revenue account in the general ledger for Farida after the sale to Pierre?

It shows a credit balance of $500 Signup and view all the answers

How does Pierre view the sales invoice in his accounting records?

As a purchase invoice Signup and view all the answers

What balance does the trade receivables account show after a full payment by a customer?

A nil balance Signup and view all the answers

When Pierre records his purchase, which two accounts are updated?

Purchases and trade payables Signup and view all the answers

What happens to the trade receivables account when Farida receives a payment?

It decreases Signup and view all the answers

What is the impact of matching the receipt to the sales invoice in Farida's accounting system?

It ensures accurate tracking of payments Signup and view all the answers

Which journal entry reflects the incremental sale made by Farida to Pierre?

Dr Trade receivables $500, Cr Revenue $500 Signup and view all the answers

What effect does Pierre's payment have on his own trade payables account?

It shows a nil balance Signup and view all the answers

How are Pierre's purchases categorized in his general ledger after the receipt of the sales invoice?

As expenses Signup and view all the answers

Study Notes

Recording Sales

Farida’s accounting system automatically creates and sends sales invoices to customers like Pierre.
This system updates the general ledger by debiting Trade Receivables and crediting Revenue for the amount of the sale.
Farida’s system also updates Pierre’s individual customer account, known as ‘PPS101,’ to keep a record of all transactions with him.
The Trade Receivables account reflects the total amount owed by all credit customers.
Individual customer accounts provide a detailed record of transactions with each customer, helping manage cash flow and track late payments.
When a customer pays, the general ledger is updated by debiting Bank and crediting Trade Receivables, reducing the outstanding balance.
Pierre’s individual customer account is also updated to reflect the payment, showing a zero balance if the payment is complete.

Recording Purchases

Pierre’s accounting system records the sale invoice from Farida as a ‘purchase invoice,’ updating his general ledger and Farida’s supplier account.
This record reflects a purchase made from Farida, updating the Purchases account with a debit and Trade Payables with a credit.
Farida’s individual supplier account is updated to show Pierre’s outstanding balance.
When Pierre pays Farida, his accounting system updates the general ledger by debiting Trade Payables and crediting Bank.
Farida’s individual supplier account is also updated, reflecting the payment made and showing a zero balance for any outstanding amounts.

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Description

This quiz covers the essentials of recording sales and purchases in an accounting system. It focuses on how transactions are recorded in the general ledger, customer accounts, and the roles of trade receivables and bank accounts in managing cash flow. Understanding these concepts is essential for effective financial management.