Questions:
- If a business buys goods worth $500 on credit, where should this transaction be recorded first?
- A customer buys a product for $100 but will pay later. How is this recorded in the books of accounts?
- What book of account would record the money received from a customer in cash?
- A business owner withdraws $200 for personal use. What is this called, and where is it recorded?
- The company buys office equipment worth $1,000 using a bank loan. Identify the asset and liability involved.
- How would a business record an electricity bill that has not yet been paid?
- A shop sells goods for $300 on credit. In which books should this be recorded?
- What type of asset is inventory, and why is it important to keep track of it?
- How does an increase in trade payables affect a business’s cash flow?
- Give an example of a non-current asset and explain its significance.
- If a business’s sales increase by 20% over a year, what decisions could be made based on this information?
- How can proper bookkeeping help prevent fraud in a business?
- What might happen if a business does not accurately record its liabilities?
- Explain how accounting can help a new business owner understand their profitability.
ANSWERS
- It should be recorded first in the purchases book (purchases journal).
- It is recorded as a trade receivable in the sales book.
- The cash book.
- This is called “drawings,” and it is recorded in the drawings account.
- Asset: Office equipment; Liability: Bank loan.
- It would be recorded as a liability under “utilities payable.”
- In the sales book (for credit sales).
- Inventory is a current asset; it is important to track to manage stock levels and cash flow.
- It reduces cash flow because the business needs to pay its suppliers.
- Example: A delivery truck. It is significant because it is used to generate revenue over a longer period.
- Decisions such as expanding the business, increasing stock levels, or hiring more staff.
- By keeping detailed records, it becomes harder for fraudulent transactions to go unnoticed.
- The business could face financial trouble, miss payments, or incur penalties.
- Accounting shows the revenue, expenses, and profit, helping understand whether the business is making or losing money.
