Section A: Key terms and recall
Name the five books of prime entry mentioned in the syllabus. [2 marks]
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The five books of prime entry are: 1. Cash book 2. Petty cash book 3. Sales journal 4. Purchases journal 5. Sales returns journal [1 mark each]
What is the dual function of the cash book? [2 marks]
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The cash book serves two purposes: 1. It is a book of prime entry where all cash and bank transactions are first recorded. 2. It is also a ledger account for bank and cash, meaning it records the balance of cash and bank. [1 mark each]
What is the purpose of the imprest system of petty cash? [2 marks]
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The purpose of the imprest system is to maintain a fixed amount of petty cash, ensuring that the petty cash balance is regularly replenished to a set amount. This helps to control petty cash expenditure and simplify the recording of small expenses. [2 marks]
What is a trade discount, and how is it treated in accounting? [2 marks]
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A trade discount is a reduction in the list price of goods or services given to a buyer for purchasing in bulk or for other reasons. It is not recorded in the accounts because it is deducted from the list price to determine the actual selling price. [2 marks]
What is a cash discount, and how is it treated in accounting? [2 marks]
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A cash discount is a reduction in the amount due if payment is made within a specified period. It is recorded in the accounts as a reduction in the sales or purchases amount, depending on whether the business is giving or receiving the discount. [2 marks]
List the four methods of recording receipts and payments. [2 marks]
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The four methods of recording receipts and payments are: 1. Cash 2. Cheques 3. Debit and credit cards 4. Online and bank transfers [0.5 marks each]
Section B: Applying your knowledge
A business makes a sale of £500 to a customer, offering a 5% trade discount and a 2% cash discount if payment is made within 10 days. The customer pays within the discount period. Calculate the amount received by the business. [3 marks]
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1. Calculate the trade discount: £500 × 5% = £25 2. Subtract the trade discount from the sale price: £500 - £25 = £475 3. Calculate the cash discount: £475 × 2% = £9.50 4. Subtract the cash discount from the amount due: £475 - £9.50 = £465.50 The amount received by the business is £465.50. [1 mark for each calculation]
A business uses the imprest system for petty cash. The petty cash float is £200. At the end of the week, the petty cash box contains £35 and receipts for £165. Prepare a petty cash analysis. [4 marks]
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Petty Cash Analysis Date: [Insert Date] Opening Float: £200.00 Receipts: - Office Supplies: £50.00 - Postage: £30.00 - Stationery: £25.00 - Miscellaneous: £60.00 Total Receipts: £165.00 Closing Float: £35.00 [1 mark for each section of the analysis]
A business records a sale of £300 to a customer on credit. In which book of prime entry should this transaction be recorded, and what is the double-entry posting to the ledger? [3 marks]
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The transaction should be recorded in the sales journal. Double-entry posting: 1. Debit Sales Account: £300 2. Credit Trade Receivables Account: £300 [1 mark for the book of prime entry, 1 mark for each part of the double-entry posting]
A business receives a payment of £250 from a customer by bank transfer. In which book of prime entry should this transaction be recorded, and what is the double-entry posting to the ledger? [3 marks]
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The transaction should be recorded in the cash book. Double-entry posting: 1. Debit Bank Account: £250 2. Credit Trade Receivables Account: £250 [1 mark for the book of prime entry, 1 mark for each part of the double-entry posting]
A business makes a purchase of £400 on credit. In which book of prime entry should this transaction be recorded, and what is the double-entry posting to the ledger? [3 marks]
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The transaction should be recorded in the purchases journal. Double-entry posting: 1. Debit Purchases Account: £400 2. Credit Trade Payables Account: £400 [1 mark for the book of prime entry, 1 mark for each part of the double-entry posting]
Section C: Explain and analyse
Explain the benefits and limitations of keeping cash at the business property. [4 marks]
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Benefits of keeping cash at the business property: 1. Immediate access to cash for small expenses and emergencies. 2. No need to visit the bank frequently for small transactions. Limitations of keeping cash at the business property: 1. Risk of theft or loss of cash. 2. No interest earned on the cash kept at the business property. [1 mark for each benefit and limitation]
Explain the benefits and limitations of using manual methods for the original entry of business transactions. [4 marks]
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Benefits of using manual methods: 1. Lower initial cost as no expensive software or hardware is required. 2. Simplicity and ease of use for small businesses or those with limited technical skills. Limitations of using manual methods: 1. Higher risk of errors due to manual data entry. 2. Time-consuming and less efficient compared to digital methods. [1 mark for each benefit and limitation]
Explain the benefits and limitations of using digital methods for the original entry of business transactions. [4 marks]
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Benefits of using digital methods: 1. Increased accuracy and reduced risk of errors. 2. Faster and more efficient processing of transactions. 3. Easier to generate reports and analyse data. Limitations of using digital methods: 1. Higher initial cost for software, hardware, and training. 2. Dependence on technology and risk of system failures or cyber threats. [1 mark for each benefit and limitation]
Section D: Challenge
A business uses the imprest system for petty cash. The petty cash float is £300. At the end of the month, the petty cash box contains £50 and receipts for £250. Prepare a petty cash analysis and explain how the petty cash float is replenished. [6 marks]
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Petty Cash Analysis Date: [Insert Date] Opening Float: £300.00 Receipts: - Office Supplies: £80.00 - Postage: £50.00 - Stationery: £40.00 - Miscellaneous: £80.00 Total Receipts: £250.00 Closing Float: £50.00 To replenish the petty cash float, the business will transfer £250 from the bank to the petty cash box. This ensures that the petty cash float is restored to its original amount of £300 (£50 remaining + £250 replenished). [1 mark for each section of the analysis, 1 mark for the explanation of replenishment]