STANDARD GRADE ACCOUNTING AND FINANCE EXAM PREPARATION – KU

							STANDARD GRADE ACCOUNTING AND FINANCE EXAM PREPARATION – KU QUESTIONS
1. When goods have been returned 2. Sales Returns/ Purchases Returns and Debtor/Creditor accounts 3. Wrong size, colour, damaged 4. • • • • Order Form – buyer sends it, seller receives it Invoice – seller sends it, buyer receives it Cheque – buyer sends it, seller receives it Receipt – seller sends it, buyer receives it

5. cash discount is offered to customers to encourage them to pay quickly. Shown at bottom of invoice (terms) trade discount is given to regular, trade customers or to customers buying in bulk to encourage them to use that supplier again 6. Value Added Tax – tax added to price of goods 7. Invoice – sent to customer to show them how much is owed for goods bought, gives details (description, price etc) of goods bought, allows customer to check before paying, used to record transaction in ledger accounts Credit Note – sent to customer when goods have been returned, shows details (description, price etc) of goods returned, reduces amount originally charged on invoice, shows amount credited to customers account, used to record transaction in ledger accounts

Statement – sent to customer at end of month to show details of all transactions for the month (purchases, returns, payments etc) and amount still owed Cheque – sent to seller to pay for goods purchased. Shows seller’s name, amount being paid, signature etc Receipt – given to buyer of goods by the seller as proof of receiving payment, gives details of money received. 8. Advantages – own boss, makes all decisions on own, doesn’t have to share profits Disadvantages – unlimited liability, difficult to raise capital, lack of expertise in certain areas, large workload and long hours 9. Public limited company. Owned by shareholders and controlled by a board of directors 10. Bank Loan – cost of repayment is known in advance, repaid in equal instalments, paid back over a period of time. However, interest is charged on full amount for term of loan Loan from family and friends – simple to arrange, may get long time to pay back, may be no or little interest Mortgage – repaid in instalments over long period of time, lower interest rate. However, secured on property which may be repossessed if payments not made Government Grant – does not have to be repaid. However, may be conditions on which it is granted

11. When the bank agree to allow you to take more money out of your account than you have in it. You are charged interest on the amount overdrawn and it has to be repaid by a date agreed with the bank 12. Advantages – increased capital, shared workload, shared expertise, shared losses and easier to take time off/holidays Disadvantages – partners still have unlimited liability, profits are shared, partners actions are binding on other partner, decision making takes longer, possible disagreements 13. Shares – when members of the public invest in the company by buying shares, in return they receive a percentage of the profits each year Debentures – when members of the public loan money to a public limited company. They receive interest on the money loaned and it has to be repaid by a certain date. 14. ordinary shares - when the dividend paid depends on how well the business has done. Low/no dividend if profits are poor, high dividend if profits are good. Decided by board of directors. Ord shares carry voting rights preference shares – shareholders receive the same percentage of dividend every year regardless of profits therefore less risky. They also receive their dividend before ordinary shareholders and are paid out first if firm is bankrupt 15. States capital invested by each, should lead to fewer disagreements, states duties/responsibilities of partners, states what happens if a partner joins or leaves, states limit on drawings, how profits/losses are to be shared, salaries to be paid

16. Their current accounts would be reduced by their share of the loss, capital would be reduced 17. Share of profits, drawings, salaries 18. capital account remains fixed unless more capital is introduced and is used as a basis for calculating share of profits, current account varies with time and shows amount undrawn or overdrawn from the business. It includes items such as salaries, drawings, profit share 19. Partnership Agreement 20. Trading and Profit and Loss Account – Sales, Purchases, Returns, Stocks, Expenses, Balance Sheet – Fixed Assets, Current Assets, Current Liabilities, Long Term Liabilities, Capital, Drawings 21. to check the arithmetic accuracy of the ledger, to make sure the DR and CR side agree, to help in preparing the final accounts 22. Error in calculating balance in ledger account, Error in adding up Trial Balance, put different figures in debit and credit entries, missed out either debit or credit entry, put in 2 debits or 2 credits 23. • • • • • • A document may have been missed out altogether eg, an invoice sent to a customer was not entered in sales, VAT or the debtor’s account An error made from the original document eg, a cheque received from a debtor for £245 was recorded in the bank and the debtor’s account as £254 A transaction may be recorded in the wrong type of account eg, purchase of stationery recorded in the Purchases account instead of the Stationery account A transaction may be recorded in the wrong persons account eg, goods sold on credit to N Duncan debited to the account of M Duncan Complete reversal of entries eg, a cheque sent to pay for rent debited to bank and credited to rent Compensating errors eg, where 2 unconnected errors cancel each other out

24. Owned by members and run by a committee appointed by members 25. • • • • • Keep tight control of the running of the club Keep a record of financial transactions for presentation to members at the end of the year Have certified records of the activities of the club Comply with legal requirements regarding the keeping of financial records Prevent fraud or embezzlement by club officials

26. Annual General Meeting – a meeting held once a year 27. Honorarium – payment to a club official for their services to the club. This is given because the treasurer/secretary are not paid a wage by the club 28. Receipts and Payments Account – contains all cash paid out and received over a certain period of time, includes opening and closing bank balances. Income and Expenditure Account – includes adjustments for accruals and prepayments, includes depreciation, does not include capital expenditure or income 29. capital expenditure – purchase of fixed assets, repayment of loan revenue expenditure – electricity, purchases of stock, honorarium etc 30. Gross Profit and Net Sales 31. reduced selling price, increased cost of purchases, stock losses or theft 32. before payment of expenses 33. to show how quickly stock is being sold, avoid build up of stocks, to see how quickly stock has to be re-ordered, to compare efficiency with previous years, to determine whether stock is selling well 34. reduce expenses, increase selling price, reduce cost of sales, find a cheaper supplier

35. fixed costs – rent, salaries, variable costs – materials, labour, royalties 36. break even point can be clearly identified, profit/loss at all levels can be easily calculated, easy to understand 37. • Increase in fixed costs – break-even point will increase, more units have to be sold in order to cover increased fixed costs • Increase in selling price – break-even point will reduce as it leads to a higher contribution per unit. Therefore fewer units need to be sold to cover fixed costs. 38. A reduction in the value of a fixed asset over time due to wear and tear, age, obsolescence, damage 39. If you expect that some money owed by debtors will not be received then you create a provision. It means that debtors are shown at a more realistic figure and a more realistic profit is recorded. 40. Cash Budget Can arrange overdraft or borrowing if cash shortage, shows cash inflows and outflows over period of time, aids future planning eg purchase of fixed assets, management can see if cutbacks are necessary, shows opening and closing balances for each month 41. • • • • • • • • Offer discounts for quick payment Sell any surplus assets Take full advantage of credit given by suppliers Reduce stock holding Reduce credit time given to debtors Inject more capital/personal savings into the business Reconsider expenses Find a cheaper supplier thus reducing outgoings

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Reduce drawings Sell stock faster eg reduce prices, sales promotions

42. Amount paid can change each time, the date of the payment can change each time, the person being paid informs the bank of the amount due, more flexible A telephone bill would be paid this way because the amount being paid changes with usage