Poa Chp 2

• Explain the difference between cash transaction and credit transaction

  • Cash transaction payment is made at the same time and immediately during cash sales or purchase
  • while credit transaction payment is delayed during a credit sale or purchase
• State the stages of accounting cycle

  • identify and record
  • Adjust
  • Report
  • Close
• State the stages of the accounting information system

  • source document
  • Journal
  • Ledger
  • Trial balance
  • financial statement of performance
  • Financial position
• Explain, with the support of an accounting theory, why source document must be used

  • In line with objectivity, a source document provide evidence to capture occurrence of a transaction
  • Historical cost. The transaction is recorded at the original cost that it occurred
• Cash transaction

  Payment is made immediately during the sale or purchase
• Credit transaction

  Payment is delayed or postponed during a credit sale or purchase
• Accounting Cycle

  1. Identify and record

  2. Adjust

  3. Report

  4. Close
• Accounting information system

  • Source document: Provides proof that transactions have occurred
  • Journal: Recorded in a journal - like a diary - daily record of transactions organised by transaction dates
  • Ledger: Relevant individual ledger accounts, consolidation and relating to a specific asset, liability, equity, income or expense item
• Trial balance

  Summary of ending balances at a specified date, adjusted
• Financial statements

  • Statement of financial performance
  • Statement of financial position
• Receipt

  Acknowledges payment received from customers immediately after the business has sold goods or provided services (cash)
• Remittance advice

  Informs credit supplier that payment by cheque has been made for a specific invoice
• Invoice (Bill)

  Informs credit customers of the amount owed after the business sold goods and provided services on credit
• Credit note

  Reduces the amount owed by credit customers who were previously overcharged or when customers returned goods
• Debit note

  Increases the amount owed by credit customers who were previously undercharged
• Payment Voucher

  Processes payment to credit suppliers (for purchases previously made)
• Bank statement


  Checks and tallies against the business records of its cash at bank accounts
• Use of bank statement

  1. transferred funds to credit supplier for amount owing

  2.Paid insurance expense of $1260 by cheque

  3. transferred funds to credit supplier for amount owing

  4. Bank charges

  5. The cheque received from customers was rejected by the bank