Accounting - Chapter 6

explain what is meant by the statement, "the accounting entries become scattered through the ledger."

"The accounting entries become scattered through the ledger" means that the individual debit and credit amounts contained in one accounting entry are recorded in a variety of accounts throughout the ledger.

explain the essential difference between a sales invoice and a cash sales slip.

A sales invoice represents a sale on account, which has yet to be paid for, while a cash sales slip represents a sale for cash, which has been paid in full.

give an example of a transaction for which there is no conventional source document.

A transaction that would not have a conventional source document would be a withdrawal of money, by the owner, from the business for personal use.

explain what cash receipts are.

Cash receipts are the cash and cheques that are received by a company in the course of doing business.

what is the most common type of transaction for which a cheque is used?

In business, a payment on account is the most common transaction for which a cheque is issued.

who else, besides the accounting department, may have reason to use the source documents on file?

The employees outside of the accounting department who made the transactions may need to see the source documents on fi le to check the details. An auditor may also need to see the source documents.

describe what is meant by the opening entry.

The opening entry is the very fi rst journal entry recorded in a journal. It is taken from the account balances in the balance sheet.

what is the purpose of an explanation in a journal entry and what does the explanation usually contain?

The purpose of an explanation in a journal entry is to make each entry unique. The explanation usually contains the reference number for the source document related to the entry.

explain who the vendor is.

The vendor is the business selling the goods or services.

what is the purpose of a cash sales slip?

A cash sales slip is a business form used to record the details of a cash sale.

why is a cheque not used as a source document?

A cheque itself is not used as a source document because it must be sent out to the payee. A copy of the cheque is kept and used as a source document.

what is a journal entry?

A journal entry is the complete accounting entry for a transaction in the form in which it is written in the general journal.

define journal.

A journal is a book in which the accounting entries for all transactions are fi rst recorded, in order of date, before they are recorded in the ledger accounts.

why is a journal known as a book of original entry?

A journal is known as a book of original entry because it is the place where the accounting entries are first recorded.

what is a point of sale terminal?

A point of sale terminal is a computerized sales register that allows a business and its customers to exchange funds electronically.

what is a purchase invoice?

A purchase invoice is a document received from a supplier when you purchase goods or services on account. The supplier calls it a sales invoice but you, the buyer, refer to it from your own point of view as a purchase document.

what is a source document?

A source document is a business paper that provides all the details about a business transaction.

answer the following questions about the two-column general journal: A. where is the year always entered? B. when do you re-enter the year? C. where is the month always entered? D. when do you re-enter the month? E. what is the rule for recording the day of a transaction?

A. The year is always entered at the very top of the date column. B. The year is re-entered in the date column at the point where a new year begins. C. The month is always entered on the first line of the date column. D. The month is always entered on the first line of the date column. E. The day is recorded for every transaction.

explain why all journal entries for purchase invoices are not the same.

All journal entries for purchase invoices are not the same because businesses purchase a variety of goods and services from many different suppliers. Some purchases, for example, will be for assets, others will be for services (expenses). While the debits change for purchase invoices, the credit to accounts payable remains constant.

why do banks issue bank advices?

Banks issue bank advices to inform clients about transactions in their bank accounts that originate from the bank. The bank will also use bank statements to inform clients of such transactions.

what does the journal entry provide besides a daily list of accounting entries?

Besides a daily list of accounting entries, the journal provides a place to work out the accounting entries for the various transactions and is a good reference for all the transactions completed by the business since they are in order of date.

describe where explanations are recorded in the journal.

Explanations are recorded immediately beneath the debits and credits, beginning at the left side of the Particulars column and staying within it.

when a customer uses a credit card to purchase an item, the business debits Accounts Receivable. True or False?

False. When a customer uses a credit card to purchase an item, the business debits Bank because credit card purchases are treated like cash receipts.

a bank debit memo requires a credit entry in the bank account of the business. explain.

From the bank's point of view, a client's bank account is a liability. To decrease a client's account requires a debit entry because it is a liability account, so a debit memo is sent to inform the client. From the business's point of view, their bank account is an asset. The debit memo is a decrease in their bank account, so it requires a credit entry at the business's end.

in the two-column general journal, how do you tell where one journal entry ends and another one begins?

In the general journal, a blank line is left between journal entries to show where one journal entry ends and another begins.

why is it necessary to prepare. a cash receipts daily summary?

It is necessary to prepare a cash receipts daily summary because the cheques a company receives as payment cannot be kept as source documents. They must be sent to the bank to be cashed. The cash receipts daily summary and copies of the cheques are source documents for the funds received.

what is meant by journalizing?

Journalizing is the process of recording accounting entries in the journal.

why is a second book, the journal, necessary in accounting?

Recording each transaction separately and in chronological order provides an important, continuous record of all transactions. The journal makes future investigations into the accounting records easy.

not all transactions requiring general journal entries are initiated by the accounting staff. explain.

Some transactions that require journal entries are initiated by the owner, sales people, department supervisors, managers, and other authorized people.

what is the principal use of source documents?

Source documents are used by the accounting department as the primary source of information for accounting entries.

how does the accounting department find out about all transactions?

The accounting department learns about all the transactions in a business through the source documents that are sent to the accounting office.

which accounts are indented when recording a journal entry?

The accounts that are to be credited are indented when recording a journal entry.

which accounts are recorded first when recording a journal entry?

The accounts that are to be debited are recorded first in a journal entry.

from what two sources does the clerk obtain the data to prepare the cash receipts daily summary?

The clerk prepares the cash receipts listing using the tear-off portion of the cheques and the remittance advices that accompany the cheques.

what supporting documents are needed for payment by cheque?

The supporting documents that are needed for payment by cheque are an invoice or bill that shows the details of the transaction and a copy of the cheque.

describe the appearance of a two-column general journal.

The two-column general journal has a column for the date, the account names, and the posting references, and then two money columns: one for the debit amounts and one for the credit amounts.