Introduction to Transaction Accounting

Interactive learning module - Fill in the blanks to test your knowledge

Instructions

Fill in the blanks in the statements below to test your knowledge. Click 'Check Answers' to see your results. If in doubt, you should go back to your BPP Interactive Text and revise first.

Basic Transaction Types

Whenever property changes hands there has been a

A cash transaction is one where the

A credit transaction is

Accounting System Purpose

The purpose of the accounting system is to

and

the information contained in the documentation generated by transactions.

Discounts and Reductions

A discount is a reduction in the price of goods below the amount at which those goods would normally be sold to other customers of the supplier.

Ais a reduction in the amount of money demanded from a customer.

Ais an optional reduction in the amount of money payable by a customer.

Sales Tax

Many business transactions involve sales tax.

is sales tax charged on goods and services sold by a business.

is sales tax paid on goods and services bought in by a business.

TRY QUESTIONS 1.1 TO 1.8

Profit and Loss

is the excess of income over expenditure. When expenditure exceeds income, the business is running at a

A business must always be treated as a

from its owners when preparing accounts.

The Accounting Equation

The accounting equation is that the assets and liabilities of a business must always be

Assets = (Capital introduced + retained profits – drawings) + liabilities

Double entry bookkeeping reflects the fact that for every debit, there is an equal

. Therefore the total value of debit entries will always be equal to the total value of credit entries.

Assets, Liabilities and Capital

At any point in time a business will have assets, liabilities and capital.

are for use within a business.

are used to generate cash.

are payables of the business.

TRY QUESTIONS 1.9 TO 1.17

Books of Account

Books ofare used to keep records of

. Examples include the sales day book, the

day book and the cash book.

Entries arefrom the day books to the

ledger.

Accounting packages can update ledgers simultaneously if the ledgers are

Customer and supplier information which is stored may be subject to

legislation.

TRY QUESTIONS 1.18 TO 1.33

Types of Accounting Errors

Theis a record of unusual movements between accounts.

An error ofoccurs when two digits in an amount are recorded the wrong way round.

An error ofmeans failing to record a transaction at all.

An error ofdenotes a mistake which breaks the 'rules' of an accounting concept or principle, such as a posting to the wrong type of account.

Error Detection and Correction

Posting to the correct accounts but using the wrong amount is an error of

Posting an entry to the wrong account is an error of

The trial balance is a list of

The trial balance will detect errors of

When a trial balance does not balance the difference is temporarily posted to a

Corrections involving equal debits and credits are made using a

Postings to the wrong account can be caused by incorrect

TRY QUESTIONS 1.34 TO 1.46

Possible Pitfalls (Write down the mistakes you know you should avoid.)

Confusing cash and credit transactions
Confusing trade and cash (or settlement) discounts
Ignoring sales tax in double entry bookkeeping
Not being able to distinguish between non-current and current assets
Not understanding the purpose and format of journals
Not being certain about debit and credit postings to control accounts
Not knowing which accounts will normally have a debit balance (such as receivables ledger control) and which will normally have a credit balance (such as payables ledger control).

IMPORTANT

Some accounting systems have a separate receivables and payables ledger and the double-entry posting in the general ledger goes to the receivables ledger or payables ledger control account. Questions which ask you to reconcile the control account balance to the receivables or payables ledger are based on this type of system.

However, some computerised systems have the receivables and payables ledgers as part of the double entry system, so no separate control account is needed. For instance, a question which says that an invoice is posted DR receivables ledger, CR sales, is based upon this type of system. You will be able to tell from the question what is needed, but be aware of the distinction.