AAT Basic Accounting 1 Assignment 3

A cash purchase refers to a situation where a business purchases goods from a supplier and makes the full payment immediately. This means that there is no credit involved, and the business pays for the goods upfront. This type of transaction is common in retail or small business settings where immediate payment is required. Therefore, the statement "A cash purchase is where a business buys goods from a supplier and pays in full immediately" is true.

A loan from V Porter is not considered an asset because it represents a liability or an obligation to repay the borrowed amount to V Porter. Assets are resources or items of value that a company or individual owns, such as office furniture, cash at bank, and accounts receivable. These assets can be used to generate income or provide future benefits to the owner. In contrast, a loan represents a debt that needs to be repaid, making it a liability rather than an asset.

The three-column cash book has three columns: one for bank, one for VAT, and one for discounts. This allows for the recording of different types of discounts, such as settlement discounts or cash discounts, which are commonly offered by suppliers to encourage prompt payment. The discounts column helps to accurately track and account for these deductions in the cash book.

The given statement is incorrect. The correct accounting equation is Assets = Liabilities + Owners Equity, not Assets = Liabilities - Owners Equity. The equation represents the relationship between a company's assets, liabilities, and owners' equity, where the total assets of a company are equal to the sum of its liabilities and owners' equity.

Cost of re-decorating is revenue expenditure because it is a form of maintenance and repair work.

The correct answer is 2 only. Capital expenditure refers to the purchase of long-term assets that are expected to provide benefits for more than one year. In this case, the purchase of a property qualifies as a capital expenditure because it is a long-term asset. On the other hand, computer repair and short-term hire of machinery are considered operating expenses as they are short-term in nature and do not provide long-term benefits.

Office fixtures sold should not be called sales because office fixtures are considered as assets of a company and their sale is categorized as a capital expenditure rather than revenue generated from sales. Sales typically refer to the revenue generated from the sale of goods or services that are part of the core business operations of a company.

Petty cash receipts are not recorded on the credit side. Instead, they are recorded on the debit side. This is because petty cash receipts represent an increase in cash, which is an asset. Debits increase assets, while credits decrease them. Therefore, petty cash receipts are recorded as a debit entry in the accounting records.

A trade receivable refers to the amount owed to a business by its customers for goods or services provided on credit. As the business has the right to receive this payment in the future, it represents an economic resource that is expected to generate future economic benefits. Therefore, a trade receivable is classified as an asset on the balance sheet of the business.

The correct answer is False because the accounting equation is Assets = Liabilities + Equity, not Contributed Capital. Equity includes both contributed capital and retained earnings.

The transactions recorded in the Petty Cash Book include expenses such as postage, window cleaning, and taxi fares. These expenses are typically small and frequent, and are paid for using the petty cash fund. By recording these transactions in the Petty Cash Book, the company can keep track of these expenses and ensure that the petty cash fund is properly managed.

The statement "Liabilities + Assets = Capital" is incorrect because in accounting, the equation is Assets = Liabilities + Capital. This equation is known as the accounting equation or the balance sheet equation. It represents the fundamental relationship between a company's assets (what it owns), liabilities (what it owes), and capital (the owner's equity). The equation must always balance, meaning that the total value of assets must equal the total value of liabilities plus capital.