97 Questions
What is the purpose of a ledger account?
To record transactions assigned to specific categories
How many capital accounts are typically found in a business operated by a sole proprietor?
One
What is the purpose of using double-entry bookkeeping in recording transactions?
To ensure each transaction affects at least two ledger accounts
What do the left-hand side and right-hand side of a ledger account represent?
Debit side and credit side
How are an entity's financial statements generated from the general ledger?
By summarizing totals from ledger accounts in the general ledger
What is the primary function of a general ledger?
To summarize and total monetary transactions by account item or type
What is the purpose of a petty cash float in accounting?
To pay for small cash expenses and manage cash flow
Which method is used to account for petty cash based on the text?
Imprest method
What is the main reason for offering trade discounts to customers?
To encourage customers to make larger orders or more frequent purchases
How are trade discounts different from settlement discounts?
Trade discounts reduce selling price, settlement discounts reduce overall invoice price
What does a settlement discount offer to credit customers?
A discount on the overall invoice price for early payment
'4/14, net 30' means:
'4% discount within 14 days, otherwise full payment within 30 days'
'Variable consideration' refers to:
The uncertainty of receiving full sales revenue due to customer decisions on settlement discounts
'Top up' in terms of petty cash means:
'Restoring petty cash float to its normal level'
What happens if a customer decides not to accept a settlement discount?
They pay the full invoice amount before the due date.
How are trade discounts accounted for by both sellers and customers?
They are disregarded in accounting records.
If an income account needs to be increased, how should it be recorded in the ledger?
Credit the income account
In a cash transaction, how is a payment typically made?
Through a cash register
What would be the correct entry when cash is received in the cash at bank ledger account?
Debit entry
Which ledger account would record cash that an entity owes to suppliers?
Payables' ledger
How would adjustments to the cash at bank general ledger account be handled for unrecorded bank transactions?
Not recorded until explicitly verified by the bank
What is the purpose of petty cash within an entity?
To cover small incidental costs
When a customer owes cash to an entity, how is it recorded in the ledger?
Debited to the receivables' ledger
What is the primary function of a cash register or cash till mentioned in the text?
To process transactions involving immediate payment or receipt of cash
Why are receipts from credit customers coded with individual references in the general ledger system?
To track and manage customer accounts effectively
Which ledger account would typically record small, occasional out-of-pocket expenses incurred by staff on behalf of an entity?
Petty cash ledger account
What happens if a customer does not pay early and is no longer entitled to the discount?
The full amount is due and the additional amount received is treated as a cash sale
What does a sales tax registered entity do in terms of sales tax?
Collects sales tax on goods sold and pays it to the tax authorities
What is Input tax in the context of sales tax?
Sales tax paid to suppliers on purchases by an entity
How are trade receivables presented in the statement of financial position?
Gross amount receivable from customers
In what case would there be a receivable in the statement of financial position according to the text?
If more input tax has been suffered than output tax collected
What does it mean when a product or service is 'zero-rated' with regards to sales tax?
A zero rate of sales tax is applied to the transaction
How do many developed economies handle taxation according to the text?
'Value Added Tax' system
What does a tax-registered entity do for the government, as mentioned in the text?
Acts as a tax collector for the government
'Output tax' in terms of sales tax refers to:
'Sales tax' charged on sales by an entity
Each ledger account in the general ledger corresponds to a specific type of transaction or event.
True
A sole proprietor typically has multiple capital accounts to track financial transactions.
False
The left-hand side of a ledger account is referred to as the credit side according to established convention.
False
An individual general ledger account is often presented as an enlarged 'L' instead of an 'T'.
False
The duality concept in accounting states that each transaction affects only one ledger account.
False
An entity's financial statements are directly produced from the individual transactions recorded in the general ledger.
False
An entity must always pay tax on the goods and services it buys, even if the supplier is not registered for sales tax.
False
Sales tax must be charged on all goods sold, regardless of whether the entity is registered to account for sales tax or not.
False
A tax-registered entity can reclaim the sales tax suffered on its purchases but cannot reclaim the sales tax paid on its own sales.
True
An entity must register for sales tax only if its purchases reach a specific threshold, regardless of its sales revenue.
False
A 'reduced rate' of sales tax can sometimes be applied to specified products or services like domestic fuel charges.
True
If more input tax has been suffered by an entity, it will result in a payable amount in the statement of financial position.
False
Output tax is the sales tax paid to suppliers on purchases made by an entity.
False
Trade payables are presented net in the statement of financial position, after accounting for sales tax.
False
'Zero-rated' products or services are those that have the highest rate of sales tax applied to them.
False
Entities carrying on tax-exempt activities can both charge and reclaim sales tax on their transactions.
False
Trade discounts and settlement discounts are the same concept and are accounted for in a similar way.
False
A petty cash float is used to pay for large transactions and is topped up regularly by the bank.
False
Settlement discounts require customers to pay less if they pay after the due date.
False
Variable consideration refers to the uncertainty around whether customers will take advantage of settlement discount terms offered.
True
Imprest method is used for accounting petty cash and involves withdrawing an amount from the bank to restore the petty cash float.
True
A settlement discount must always be accepted by customers if offered by the seller.
False
A trade discount is typically offered to credit customers who pay early.
False
Trade discounts are included in the accounting records of both the seller and the customer.
False
An entity can prepare a sales invoice at a higher amount when offering a settlement discount, then issue a credit note if the customer accepts the discount.
True
The purpose of offering trade discounts is to ensure customers place smaller individual orders more frequently.
False
Sales and purchases made by cheque or immediate bank transfer are not considered cash transactions.
True
Cash that an entity is owed by customers is accounted for in the payables’ ledger.
False
Petty cash is used for large business expenses like paying salaries and rent.
False
In double-entry bookkeeping, cash received is recorded with a credit entry in the cash at bank ledger account.
False
Errors made by the bank in transactions should be recorded in the cash at bank general ledger account.
False
Credit sales and purchases are transactions where goods or services change hands immediately, and payment is received immediately.
False
Cash transactions are those where payment is made or received immediately at the point of sale/purchase, without any delay.
True
Adjustments to the cash at bank general ledger account are not needed for unrecorded bank transactions.
False
When cash is paid out, the entry in the cash at bank ledger account is a credit.
True
An entity's financial statements do not need to include transactions that have passed through the bank account.
False
Match the following terms with their descriptions:
General Ledger = Contains summary totals of ledger accounts for financial statements Cash at Bank Ledger Account = Records cash transactions including deposits and withdrawals Ledger Account = Contains a record of transactions assigned to a specific item Chart of Accounts = Set of ledger accounts used to record transactions
Match the following concepts with their definitions:
Duality Concept = Each transaction affects at least two ledger accounts Double-Entry Bookkeeping = Recording transactions with both a debit and credit entry Imprest Method = Withdrawing an amount from the bank to restore petty cash float T-Account = Traditional representation of a ledger account with two sides
Match the following statements with the correct terms:
Debit Side = Left-hand side of a ledger account Credit Side = Right-hand side of a ledger account Sales Tax Registered Entity = Entity registered to account for sales tax Petty Cash Float = Amount withdrawn from bank for small expenses
Match the following terms with their definitions:
Petty cash float = Amount withdrawn from the bank for small cash expenses Trade discount = Reduction in selling price given to encourage larger orders Settlement discount = Discount for early payment of a debt Imprest method = Restoring petty cash float to a fixed level by withdrawing from the bank
Match the given actions with the appropriate ledger accounts:
Recording Cash Transactions = Cash at Bank Ledger Account Tracking Asset Increases and Decreases = Capital Account Accounting for Small Expenses = Petty Cash Ledger Account Producing Financial Statements Totals = General Ledger
Match the following concepts with their descriptions:
Variable consideration = Uncertainty in receiving full or discounted payment at the time of sale Duality concept = Every transaction affects at least two ledger accounts Output tax = Sales tax paid on purchases made by an entity Input tax = Sales tax paid to suppliers on purchases
Match the following concepts with their outcomes:
Offering Trade Discounts = Encouraging smaller, frequent orders from customers Settlement Discounts = Allowing customers to pay less if they settle early Input Tax = Tax paid on goods and services purchased by an entity Output Tax = Tax charged on goods and services sold by an entity
Match the following statements with the correct method of dealing with settlement discounts:
Prepare full amount invoice, issue credit note if settlement discount taken = Seller's approach to uncertain discount acceptance Prepare reduced amount invoice, expect early payment and discount = Seller's proactive approach to settlement discount Accept settlement discount offer and pay reduced amount within timeframe = Buyer's response to settlement discount terms Pay full invoice amount within specified calendar days = Buyer's decision not to take settlement discount
Match the following ledger accounts with their typical contents:
Payables' Ledger Account = Cash owed by entity to suppliers Receivables' Ledger Account = Cash owed by customers to the entity Income Ledger Account = Record of income received during an accounting period Expense Ledger Account = Record of expenses incurred by the entity
Match the following ledger account types with their purposes:
Cash at bank ledger account = Recording cash received and paid out Trade payables ledger account = Recording money owed to suppliers Payables' ledger account = Recording cash owed by customers General ledger account = Recording various transactions for financial statement preparation
Match the following accounting methods with their specific applications:
Double-entry bookkeeping = Recording each transaction in at least two accounts Credit note issuance for early payment discounts = Adjusting sales revenue and receivables after acceptance Top-up of petty cash float from bank withdrawals = 'Imprest method' for maintaining fixed petty cash level Increased income account recording in ledger = Method for boosting revenue entries in financial statements
Match the following terms with their correct definitions:
Output tax = Sales tax charged on sales by an entity Input tax = Sales tax paid to suppliers on purchases Variable consideration = Uncertainty around whether customers will take advantage of settlement discount terms offered Trade discounts = Reductions in the list price of goods offered by a seller to a buyer
Match the following sales tax concepts with their descriptions:
Zero-rated supplies = Products or services with a zero rate of sales tax applied Taxable supplies = Goods and services sold subject to sales tax Exempt supplies = Goods or services outside the scope of sales tax Standard rate vs. reduced rate = Different rates of sales tax applied based on the nature of the goods or services
Match the following statements about sales tax with their correct explanations:
Sales tax collection process = Tax-registered entity collects sales tax on goods sold and pays it to tax authorities Sales tax recovery on purchases = Entity can reclaim sales tax paid on its own purchases of goods, expenses, and assets Sales tax registration thresholds = Entity must register for sales tax when its sales revenue or turnover reaches a specific limit VAT vs. sales tax = In the UK, Value Added Tax is known as sales tax in this chapter
Match the following financial statement items with their correct treatments:
Trade receivables = Presented gross in the statement of financial position Trade payables = Presented gross in the statement of financial position Income and expenses = Presented net of sales tax in the statement of profit or loss Sales tax owed vs. collected = Offset against each other with the net amount included in the financial position statement
Match the following taxation terms with their respective explanations:
Value Added Tax (VAT) = Known as sales tax in this chapter for the UK Taxable supplies vs. exempt supplies = 'Zero-rated' products are taxable while 'exempt' items are not subject to sales tax Tax registration thresholds = Entity must register when specific limits based on revenue or turnover are reached Tax collection process = Seller collects tax and pays it to authorities, while reclaiming taxes paid on purchases
Match the type of ledger account with its corresponding entry when cash is received:
Cash at bank ledger account = Debit Receivables' ledger account = Debit Payables' ledger account = Credit Petty cash ledger account = Debit
Match the following types of transactions with their classification as either cash or credit transactions:
Sales made by cheque = Credit transaction Payment received immediately at point of sale = Cash transaction Purchase on credit to be paid at a future date = Credit transaction Sales and purchases made by immediate bank transfer = Cash transaction
Match the correct entry in the cash at bank ledger account with the corresponding transaction:
Cash payment made (reduction in asset) = Credit Bank interest received = Debit Direct debit payment = Credit Cash received (increase in asset) = Debit
Match the following terms with their correct meanings:
Double-entry bookkeeping = Recording each transaction with two entries to maintain balance Petty cash float = Relatively small sums of coins and notes for minor expenses Imprest method = Restoring petty cash by withdrawing from the bank for replenishment Settlement discount = Offering customers a reduced price for early payment
Match the ledger accounts with their corresponding entries for increases in assets and liabilities:
Asset increase entry = Debit in asset accounts Expense increase entry = Debit in expense accounts Income account increase entry = Credit in income accounts Liability increase entry = Credit in liability accounts
Match the following terms with their descriptions:
Cash transactions = Payment made or received immediately at point of sale/purchase Credit transactions = Transaction where payment is not immediately received but at a future date Output tax = Sales tax paid on purchases made by an entity Input tax = Sales tax suffered on purchases, reclaimable by a tax-registered entity
Match the ledger accounts with their corresponding treatment for errors made by the bank:
Cash at bank ledger account = Not recorded, but notified to the bank for correction Receivables' ledger account = Not recorded, but notified to the bank for correction Payables' ledger account = Not recorded, but notified to the bank for correction Petty cash ledger account = Not recorded, but notified to the bank for correction
Match the following statements with their correct descriptions:
Cheques and cash in till counted daily transferred to bank account = Cash transactions processed through cash register/till Individual receipt/payment references used for updating general ledger = Source documents obtained from banking system for updates Coding payments to suppliers with individual payable account = Simultaneous update of payables' and general ledger accounts
Match the types of ledger accounts with their descriptions:
Receivables' ledger account = Accounts for cash owed by customers (increase in asset) Payables' ledger account = Accounts for cash owed to suppliers (increase in liability) Petty cash ledger account = Tracks receipts and payments for small out-of-pocket expenses incurred by staff (increase/decrease in asset) Cash at bank ledger account = Records cash transactions where debits are used to increase assets and credits are used to decrease assets
Match the method/terms with their appropriate actions:
Bank interest received = Recorded as a debit in Cash at bank ledger account Direct debit payment = Recorded as a credit in Cash at bank ledger account Imprest method = Withdrawal from the bank to restore petty cash float Settlement discount = Offering customers lower price if they pay early
Learn about the petty cash system, including the concept of 'petty cash float', recording payments, and the 'imprest method' of topping up the float. Understand how the petty cash system helps manage sundry cash expenses efficiently.
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