Recording of Transactions Test - 5

A cash transaction refers to a sale where payment is made immediately in cash. Sold goods indicates a cash transaction because it implies that goods were sold, and payment was received at the time of the sale in cash. In other options, the transaction may involve selling goods, but it doesn't specify the method of payment. 

Source documents serve as evidence of transactions and are essential for recording accurate financial information in accounting. Some examples of source documents are cash memo, invoices, sales orders, credit note, receipts and purchase orders etc.

A receipt is a business document that serves as proof of payment for a business transaction. It is issued by the seller or service provider to the buyer or customer upon receiving payment. The receipt typically includes details such as the date of the transaction, the amount paid, the method of payment, and a description of the goods or services purchased. Therefore, a receipt acts as evidence that payment has been made and completes the transaction between the parties involved.

The correct match is a-(v), b-(iv), c-(iii), d-(ii), e-(i). 

Cash, debtors, and furniture are examples of assets. These are resources owned by the business that provide future economic benefits.

Trade payables and short-term loans represent obligations or debts owed by the business to external parties. These are liabilities that the business needs to settle in the future.

Sales and commissions received represent revenue generated by the business from its primary activities, such as selling goods or providing services.

Purchases and salary paid are examples of expenses incurred by the business in order to generate revenue. Expenses represent the costs of running the business.

Equity shares represent the ownership stake in the business held by shareholders. It is the amount invested by the owners of the business to establish and operate it.

When a business collects accounts receivable, it receives cash, which increases its assets (cash or cash equivalents). However, it also reduces the accounts receivable balance, which is a form of reducing assets since the business no longer expects to receive that money. Therefore, the collection of accounts receivable results in both an increase in assets (cash) and a decrease in assets (accounts receivable).

A petty cash book is specifically used for recording small or petty expenses incurred by a business. It allows for easy tracking and management of these minor expenditures. The petty cash book typically has a designated fund from which these expenses are paid, and entries are made to account for the disbursements from this fund. 

An overdrawn balance on the firm’s bank account is indeed considered a liability. When a firm's bank account has a negative balance, it indicates that the firm has withdrawn more money than is available in the account. This overdrawn amount represents a debt owed by the firm to the bank. Therefore, it is classified as a liability because the firm is obligated to repay the overdrawn amount to the bank.

Depreciation is an expense on the income statement it effects shareholders' equity through net income which can impact the assets. The higher the depreciation implies the lower the net income and assets, thus lower owners' equity. Depreciation leads to increase in the assets and the shareholder's equity.

A credit balance in the bank account column of the cash book indicates that cash has been deposited into the bank. This means that the business has added funds to its bank account, resulting in a positive balance. It does not indicate an overdraft or cash withdrawal. 

The weekly or monthly total of the purchase book represents the total purchases made by the business during that period. This total is recorded on the debit side of the Purchase Account in the ledger. This entry reflects the increase in purchases, following the principle of double-entry accounting.