Chapter 2: Accounting Information System

What are the four stages of the accounting cycle?

• Adjust -> Identify and record -> Report -> Close

• Report -> Close -> Identify and record -> Adjust

• Identify and record -> Adjust -> Report -> Close

• Identify and Record -> Report -> Adjust -> Close

Answer explanation

The four stages of the accounting cycle are: Identify and record -> Adjust -> Report -> Close.

What is the accounting theory that states that all transactions must be recorded at the original cost at which they occurred?

• Historical cost

• Original cost

• Objectivity

• Monetary

Answer explanation

According to the historical cost theory, the transaction is recorded at the original cost that it occurred.

What is the accounting theory that states that a source document provides evidence to capture the occurrence of a transaction?

• Historical cost

• Original cost

• Objectivity

• Monetary

Answer explanation

According to the objectivity theory, a source document provides evidence to capture occurrence of a transaction.

Which of the following provides proof that a transaction has occurred?

• Source document

• Journal

• Ledger

• Trial balance

Answer explanation

Receipt: Acknowledges payment received from customers immediately after the business has sold goods or provided services.

Which source document will be received by a business when it purchases goods on credit from its supplier?

• Credit note

• Invoice

• Payment voucher

• Receipt

Answer explanation

Invoice: Informs credit customers of the amount owed after the business sold goods or provided services on credit.

What is the purpose(s) of issuing a credit note? (You may select more than one option)

• To inform the credit supplier that payment by cheque has been made for a specific invoice

• To reduce the amount owed by credit customers who were previously overcharged

• To increase the amount owed by credit customers who were previously undercharged

• To reduce the amount owed by credit customers after goods were returned to the business

Answer explanation

Credit note: Reduces the amount owed by credit customers:

• who were previously overcharged; or

• after goods were returned.

Which source document would be used to increase the amount owed by a credit customer?

• Receipt

• Invoice

• Credit note

• Debit note

Answer explanation

Debit note: Increases the amount owed by credit customers who were previously undercharged.

Which source document, approved by authorised personnel and supported by the original supplier's invoice, is used to process payment to credit suppliers?

• Credit note

• Payment voucher

• Remittance advice

• Debit note

Answer explanation

Payment voucher: Processes payment to credit suppliers:

• must be approved by authorised personnel; and

• must be supported by original supplier’s invoice.

What is the purpose of a remittance advice?

• To inform the credit supplier that payment by cheque has been made for a specific invoice

• To inform the credit customer that payment by cheque has been made for a specific invoice

• To inform the credit customer of the amount owed after the business sold goods

• To inform the credit supplier of the amount owed after the business provided services

Answer explanation

Remittance advice: Informs credit supplier that payment by cheque has been made for a specific invoice.

Which source document is used to check and tally against the records of its cash at bank account?

• Credit note

• Bank statement

• Remittance advice

• Payment voucher

Answer explanation

Bank statement: Checks and tallies against the business records of its cash at bank account.