2 - Record Keeping (Question 1)/Cashbook Transactions (Question 2) - Assignment Example

Accounting Assignment 2 Module 3 of the of the Accounting Assignment 2 Module 3 Q RECORD KEEPING AND BUSINESS CORRESPONDENCE 1. Identify the two main reasons for keeping records in small business. Write brief explanatory notes about each. One reason for keeping accounting records is that it helps a trader or businessman to know about the state of his business. He can keep tabs on the position of cash and credit, the overall position of assets and liabilities etc. Another reason may be for taxation and legal purposes. 2. Develop your short description of the features and purposes of a small business record system.

A small business record system may consist of transactions in a cashbook, sales and purchases journal with subsidiary ledgers and a general journal to keep a record of other transactions that do not fall into the above categories. The purpose is to give the owner a complete and updated picture of the state of his business dealings. 3. What is a source document? A source document is proof of a business transaction. A sales invoice is proof that you have sold goods to a counter-party called a creditor.

Source documents are first records of business transactions and form the basis for accounting records (Casavant et al, 1998). 4. Why is it important to have a ‘trail’ through business documents? A trail of business transactions helps trace the documentary evidence for a transaction. That is why it is important to have one. It also forms the basis for auditing business transactions. 5. What should an invoice (accompanying goods received from a supplier) disclose that protects: a) Your accounting system? b) The supplier’s accounting system?

The invoice should include the date, invoice number, name of supplier, description of goods ordered with itemized and gross total. The invoice number is unique and can be traced to the original document. On the receiving end, the order placed was probably the result of a purchase requisition, so the invoice can be traced to a particular purchase requisition that makes it unique at the buyer’s end as well. It will also contain unique shipping marks. 6. As a supplier, how do you ensure that goods that were ordered are supplied as requested?

By comparing the order to the written request for it. 7. As a purchaser from another supplier, how do you ensure that the goods you pay for are the goods actually received? By comparing the actual goods received with the invoice and the purchase requisition. 8. What is a cheque? A cheque is a promise to pay by the maker that the amount therein will be paid to the presenter on presenting the instrument at the counters of a bank. i) What effect has a ‘not negotiable’ crossing? The effect of a ‘not negotiable’ crossing is that no one can get a better title to the cheque than the person who has made such a crossing. ii) Suppose a creditor loses a cheque you have paid for a sum owed –should he or she be entitled to a new one?

Normally you would place a Stop Order over a cheque before issuing a duplicate one. The bank also asks you to indemnify it against losses in case of inadvertent payment of the cheque. iii)What is a bank cheque? A bank cheque is a payment that has already been paid for in cash and guaranteed for payment if presented at the counters of a bank. It may also be called a Pay Order. 9. Give two (2) reasons why a taxation return may be inadequate for management decision making. It may be impossible to consider the tax implications of every decision.

Also once taxes are recorded and paid, it is usually difficult to submit corrections or amendments that would lower taxation effects. 10. What advantages are there for a business manager in receiving regular (weekly or monthly) bank statements, compared to say once or twice a year? It is often easier to compare, account for or correct erroneous transactions and charges on a weekly or monthly basis, as compared to only once or twice a year. Moreover the cash book is closed at the end of every month and a bank reconciliation statement prepared, which makes it easier to balance if statements are received on a weekly or monthly basis. 11. There are legal and taxation obligations for high standards of record keeping by business proprietors.

List at least three. For GST purposes, for Worker Compensation Insurance returns, for sundry statistical returns. 12. Why should private financial transactions be isolated from business transactions in the record keeping system? A sole proprietor should be able to distinguish and demarcate those transactions he has made for his personal life (private transactions) from those he has made for his business. 13. Why use analysis columns in a cashbook? Analysis columns help separate the amounts in a total transaction between GST, discount and total amount paid. 14. How are negative numbers entered in summary financial statements?

Negative numbers are identifiable in summary financial statements because they are enclosed in brackets. 15. Define ‘creditor’ and ‘debtor’. A creditor is someone who you owe money to. A debtor is someone who owes money to you. 16. Why will the end of month balance in the cashbook be different from the end of month balance in the bank statement? Because of charges recorded by the bank or unpresented cheques (Casavant et al.,1998). 17. List transactions that may be listed for the first time on the bank statement, and need to be transferred to the cashbook each month.

Bank charges, direct debits, cheques paid out by bank. 18. Why are principal and interest components of loan payments often recorded separately? Because a record can be maintained of the amount paid back as principal, separated from the amount paid back as interest. 19. When a net payment is received for goods sold, with some expenses already deducted from gross receipts, why should the gross receipts amount be recorded? Because it gives the whole picture of the entire transaction. The total of net payment plus expenses deducted will amount to and can be offset against the gross receipts.

Question 2 Cashbook transactions (30 marks) Set out below are the records of transactions for the YRAMDERF business for the month of August 2009. Enter these transactions into the attached Cash Receipts and Cash Payments books appropriately. Once you have entered these transactions, compare the Bank Statement with the Cash Books and ensure that all transactions on the Bank Statement are entered into the Cash Books before completing the Cash Books and doing a Bank Reconciliation. Marks allocated for Cash Receipts Book (8 marks), Cash Payments Book (12 marks), Cash Summary (5 marks) and Bank Reconciliation Statement (5 marks).

Hints on completing cashbooks 1. Cash Summary Statement: For ACTUAL CASH BALANCE (beginning of month), (first line of the statement) use the end of month cash balance from the July Cash Summary or the July Bank Reconciliation Statement. Cash Receipts Book 8 marks Date Particulars Rec Total Net Bank Takings Bank Capital GST Collected No Received Amounts Interest Receipts Aug 07 Inventory Sold 16 7,700 7,000 7,000 7,000 700 14 Banked Takings 17 16,500 15,000 15,000 15,000 1,500 21 Banked Takings 18 13,761 12,500 12,500 13,761 1,261 31 Banked Takings 19 29,700 27,000 27,000 27,000 2,700 31 Bank Interest Recd 9 9 9 Total Receipts This Month 61,500.

00 55,761.00 9.00 7,000.00 6,161.00 67,670.00 61,500.00 Brought Forward $41,265.00 $41,265.00 $41,265.00 $ 37,500.00 $ - $ 15.00 $ - $3,750.00 108,935.00 102,765.00 102,765,00 93,261.00 24.00 7,000.00 9911.00 Total Receipts Year to Date Cash Payments Book 12 marks Date Particulars Chq Total Deduct Bank Purchases Variable Overhead Capital GST Paid No of Inventory Payments Payments Payments & Remitted Aug 03 Inventory Purchase 371 11,000 1100 9,900 9,900 1,100 05 Paid Casual Wages 372 2,000 2,000 2,000 10 Worker Insurance 373 2,200 200 2,000 2,000 200 10 Rates 374 5,000 5,000 5,000 12 Casual Wages 375 1,000 1,000 1,000 17 Permanent Wages 376 5,000 5,000 5,000 19 Casual Wages 377 2,000 2,000 2,000 20 Paid Advertising 378 187 17 170 170 17 24 Paid Fuel Account 379 264 24 240 240 24 26 Casual Wages 380 1,000 1,000 1,000 28 Eqpt Maintenance 381 550 50 500 500 50 28 Paid for Electricity 382 660 60 600 600 60 28 Paid Staff Training 383 440 40 400 400 40 31 Permanent Wages 384 5,000 5,000 5,000 31 Bank Acct Fees 5 5 30,206.00 1491.00 34,815.00 9,900.00 5,000.

00 19,910.00 1,491.00 Total Payments This Month Brought Forward $46,965.00 0 $46,965.00 $15,000.00 $8,200.00 $20,586.00 $0.00 $3,179.00 Total Payments Year to Date 77,171.00 1491.00 81,780.00 24,900.00 13,200.00 40,496.00 4.670.00 CASH SUMMARY STATEMENT FOR: YRAMDERF FOR THE MONTH OF: August 2009 $ ACTUAL CASH BALANCE (beginning of month) 21,656 ADD CASH RECEIPTS FOR MONTH 102,765 (bank column of Cash Receipts Book) SUBTOTAL 124,421 LESS CASH PAYMENTS FOR MONTH 34,815 (bank column of Cash Payments Book) ACTUAL CASH BALANCE (A) (end of month) 121,006 BANK RECONCILIATION STATEMENT FOR YRAMDERF FOR THE MONTH OF: August 2009 $ LAST BALANCE FROM BANK ACCOUNT ADD UNRECORDED DEPOSITS Sub-total LESS UNPRESENTED CHEQUES ACTUAL CASH BALANCE (B) (end of month) References Casavant, K.

L, Infanger, C. L. & Bridges, D.E.(1998). Agricultural Economics and Management, 1st ed. Prentice Hall.