FINAL DECK - AAT: BA1: Chapter 1: Introduction to the accounting system

Question 1

All businesses carry out?

Answer 1

A wide range of FT’s on a daily basis

Question 2

Common transactions include

Answer 2

Selling Goods and Services

Making Purchases and paying expenses

Payments in and out of the bank account

Question 3

Goods and services can be sold either for:

Answer 3

1. Immediate payment (ie. Cash Sales)

2. Later payment (ie. Credit Sales)

Question 4

Examples of purchases and expenses include

Answer 4

A wide range of large and small transactions, some more important than others.

Question 5

Eg. of Settling purchase and expenses,

Answer 5

1. Paying by cheque or by bank transfer for goods / services supplied during the previous month

Question 6

Eg. of buying an item used in the business?

Answer 6

A new delivery van using company credit card

Question 7

Payments in and out of the bank account?

Answer 7

The money received by the business and the money paid out by the business will pass through the bank account.

Question 8

Payments in and out of the bank account *eg.)

Answer 8

Cash & cheques rec’d from selling Goods & Services, paid over the counter into the bank account.

Settling the company credit card by direct debit payment from the bank account.

Paying the weekly wages through the bank account.

Drawing cash out of the bank for use in the office.

Question 9

The Importance of Keeping Track

Answer 9

As you will see from the above examples, recording FTs will be a complex process.

A business will need to keep track of:

• Expenses & Purchases
• Wages Paid
• What each customer owes, & when the money is due
• Amounts paid into & out of the bank account.

Question 10

If these transactions are not recorded accurately…

Answer 10

The owner of the business and other interested organisations such as the bank and the tax authorities will not know how much money the business is making (or losing!)

Question 11

The Five Stage Accounting System?

INTRO PARAGRAPH

Answer 11

The Accounting system, which will be set in motion by all the transactions listed on the previous page, can be broken down into five stages

Question 12

The Five Stage Accounting System?

HEADINGS

Answer 12

1. FINANCIAL TRANSACTIONS (FTS)
2. FINANCIAL DOCUMENTS (FDS)
3. BOOKS OF PRIME ENTRY.
4. LEDGER ACCOUNTS
5. TRIAL BALANCE

Question 13

1. FINANCIAL TRANSACTIONS

Answer 13

The originating transaction

eg. a sale, purchase, payment

Question 14

2. FINANCIAL DOCUMENTS

Answer 14

Documents GENERATED BY THE TRANSACTION

eg. invoice, cheque

Question 15

3. BOOKS OF PRIME ENTRY

Answer 15

Place where document is first recorded in the books of the business.
(eg. Sales Day book, Cash Book, Petty Cash Book)

Question 16

4. LEDGER ACCOUNTS

Answer 16

The main accounting records of the business ususally setup as a DE (Double Entry) system

Question 17

5. TRIAL BALANCE

Answer 17

A listing of the ledger accounts (LAs), used as a checking device and a source of accounting information for the owners and managers.

Question 18

Books Of Prime Entry (BoPE) include:

Answer 18

Day Books

Cash Books

Question 19

BoPE Day Books for?

Answer 19

Credit Sales & Sales Returns & Credit Purchases & Purchase Returns

Question 20

BoPE Cash book is for?

Answer 20

Recording payments into & out of the bank account.

Question 21

Ledger Accounts (LAs) are?

Answer 21

Formal book-keeping records kept by the business and are kept in written form / on computer.

Question 22

Most businesses use an accounting system based on?

Answer 22

The Double-Entry (DE) Book-Keeping System (BKS) whereby each FT is recorded into the accounts twice.

Question 23

Book-Keeping Records are usually kept in one of two forms. These are?

Answer 23

Handwritten (manual) / Computerised System (SAGE)

Question 24

Handwriting the accounts is the traditional method of keeping the books…

Answer 24

…particularly by smaller businesses.

Question 25

Why do small businesses handwrite the accounts?

Answer 25

It is relatively straightforward & cheap to operate.

Question 26

What is the main record?

Answer 26

The Ledger is the main record.

Question 27

What is the Ledger?

Answer 27

A large book into which each business transaction is entered by hand into indiviual accounts.

Question 28

Division of the ledger - why?

Answer 28

Because of the potentially large number of accounts involved, the ledger is split up into different individual ledgers. Both in Manual systems & also computer systems.

Question 29

Division of the ledger - 3?

Answer 29

Sales Ledger

Purchases Ledger

General Ledger

Question 30

Sales Ledger?

Answer 30

Each cust. given a personal account (PA) containing records of sales made on credit, any returned goods, & payments received.

Question 31

Sales Ledger - what does this account show?

Answer 31

This account shows the business the amount owed to that particular customer.

Question 32

Payable?

Answer 32

Supplier

Question 33

Recievable?

Answer 33

Customer

Question 34

General Ledger?

Answer 34

This collection of accounts records all other transactions of the business, such as:

Assetss, Liabilities, Owner’s capital

Expense Items - Money out
(eg. wages & rent paid)

Income items 0 - Money in
(sales & rent received)

Question 35

Assets?

Answer 35

Things owed

eg. Premises, cars, computers

Question 36

Liabilities

Answer 36

Items owed

eg. Overdrafts and bank loans

Question 37

Owners’s capital

Answer 37

Amount invested in the business ny the owner

Question 38

General Ledger sometimes known as?

Answer 38

‘Nominal ledger

As in Sage Computing

Question 39

Control accounts?

Def

Answer 39

Many businesses Control Accounts to provide them info re: FINANCIAL STATE of organisation.

CA’s are ‘total’ accounts to provide them with info about the financial state of the organisation

Question 40

Control Accounts (eg.)

Answer 40

Sales Ledger Control Account

Purchases ledger control account

Question 41

Sales Ledger Control Account?

Answer 41

Contains totals of all the receivable accounts in the sales ledger

Tells business how much is owing from all their customers

Question 42

Purchases Ledger (PL) Control Account

Answer 42

Contains totals of all the payable (creditor) accounts in the PL

Tells the business how much is owing to all their suppliers at any one time.

Question 43

Trial Balance

Answer 43

• Final stage in accounting system
• Brings together balances of all LAs
• Laid out in 2 columns (DR & CR)
• CR = DR

Question 44

Trial Balance headings

Answer 44

Name of business

Date it was drawn up

Question 45

Recievables & Payables?

Answer 45

= Total Figures