Bookkeeping Transactions Flashcards

A contra entry between the sales ledger and purchase ledger is used when:

Answer: A person is both a customer and a supplier of the business

A contra entry is made when a person or business appears in both the sales ledger (as a customer) and the purchase ledger (as a supplier). The amounts can be offset against each other to simplify settlement.

An irrecoverable debt of £300 plus VAT at 20% is written off. What is the total debit to the irrecoverable debts account?

Answer: £300

When writing off an irrecoverable debt, the net amount (£300) is debited to irrecoverable debts expense. The VAT element (£60) is reclaimed by debiting the VAT control account. Only the net amount goes to the expense account.

The total of the sales returns day book is posted to the:

Answer: Debit side of the sales returns account in the general ledger

The total from the sales returns day book is debited to the sales returns account in the general ledger. Sales returns reduce income and have a debit balance. Individual customer accounts in the sales ledger are credited.

A cash book with a debit balance indicates:

Answer: The business has money in the bank

In the business's cash book, a debit balance means the business has a positive bank balance (money in the bank). An overdraft would be shown as a credit balance in the cash book.

Which of the following documents starts the purchase transaction cycle?

Answer: Purchase order

The purchase order is the document sent by the buyer to the supplier to formally request goods or services. It initiates the purchase cycle, which then continues with delivery, goods received note, and invoice.

Bulk discount is best described as a reduction in price given for:

Answer: Ordering a large quantity

A bulk discount (trade discount) is offered when a buyer purchases goods in large quantities. It is deducted from the list price before the invoice total is calculated and before VAT is applied.