Recording of Transactions Test - 2

When a company collects money from its debtors by cheque, it decreases the amount owed to the company by the debtors, thereby reducing accounts receivable or debtors (asset). Since the company is receiving payment, there is no change in liabilities. Therefore, the effect is a decrease in the debtor (asset) without any impact on liabilities.

The accounting equation represents the fundamental relationship in accounting between a company's assets, liabilities, and owner's equity. Assets are financed by either liabilities (borrowings) or capital (owner's equity). Therefore, the equation that correctly represents assets is the sum of the Capital(owner's equity) and liabilities. This equation can be expressed as:

Assets = Capital(Owner's Equity) + Liabilities

Preparing vouchers offers several benefits in accounting and financial management. They help to retain more control over the payables process by documenting and authorizing each transaction before payment is made. They simplify the payables audit trail by providing a clear record of each transaction, including details such as the date, amount, purpose, and authorized signatories. They can facilitate the process of making payments for multiple vouchers at once, streamlining the payment process and improving efficiency in managing accounts payable.

The final balance of the purchase book, which represents the total purchases made during a specific accounting period, is debited to the Purchases account. The Purchases account is used to record the cost of goods purchased for resale or for use in the business.

A debit note is issued by a seller to inform the buyer that their account has been debited, usually due to reasons such as returns, adjustments, or additional charges. It serves as formal documentation of the debit transaction, providing clarity on the debited amount and the associated reasons. 

A debit voucher is prepared for various transactions such as payment of salaries, purchase of goods, and payments made to creditors. It is used to record transactions where the firm's account is debited, indicating an increase in expenses or assets. 

When the business owner withdraws cash for personal use, it reduces the amount of capital invested in the business. This withdrawal represents a distribution of profits or a reduction in the owner's equity in the business. Therefore, the effect on capital is a decrease.

An invoice is a document issued by a seller to a buyer, detailing the products or services sold, quantities, prices, terms of sale, and payment terms. It serves as a formal request for payment from the customer or client. In this way, invoices play a crucial role in the accounts receivable process by reminding customers to make payments on time and facilitating the tracking of outstanding balances. Invoices indirectly contribute to keeping an account of sales or supplies and tracking inventory by documenting sales transactions.

Credit sales of goods are recorded in the Sales Book. This book is specifically used to record all sales transactions made on credit, including details such as the date of sale, the customer's name, invoice number, quantity sold, and the selling price. It helps in maintaining a systematic record of credit sales for accounting and financial reporting purposes.

The balance sheet is a financial statement that presents a snapshot of a company's financial position at a specific point in time. It lists the company's assets, liabilities, and equity. The fundamental accounting equation:

Assets = Liabilities + Equity

It is the basis for the balance sheet. Assets are equal to the sum of liabilities and equity. Therefore, the balance sheet directly reflects the accounting equation.