Do You Know Accounting?

Posting is the process of entering the transaction from the journal to the ledger. It involves transferring the information from the journal, where transactions are initially recorded, to the appropriate accounts in the ledger. This step ensures that all transactions are accurately recorded and organized in the ledger, making it easier to track and analyze financial information. By posting the transactions, the ledger becomes a comprehensive and up-to-date record of all financial activities within an organization.

Bank overdrafts are generally reported as a current liability because they represent funds that a company has borrowed from a bank and must repay within a short period, usually within a year. As a liability, bank overdrafts indicate the company's obligation to the bank and are typically included in the current liabilities section of the balance sheet. This classification reflects the fact that the company owes the bank money and is expected to settle the debt in the near future.

Money market chequing accounts are considered as "cash" for reporting purposes because they are highly liquid and can be readily converted into cash. These accounts typically offer a low risk and provide a higher interest rate compared to regular chequing accounts. They are easily accessible and can be used for daily transactions, making them a reliable form of cash for reporting purposes.

Offering very loose or flexible credit terms to encourage sales would not be considered good management of accounts receivable. This is because it increases the risk of late or non-payment from customers, leading to a higher level of bad debts. Good management of accounts receivable involves assessing the creditworthiness of new or potential customers, offering discounts to encourage faster payment, and conducting regular aged receivables analysis to monitor and control the outstanding balances.

The purpose of accounting is to provide information on the cost and income of the employees, as well as the company's tax records and the financial condition of the institution. Accounting involves recording, summarizing, and analyzing financial transactions to provide accurate and relevant information for decision-making purposes. By tracking the cost and income of employees, the company can assess their performance and make informed decisions regarding compensation and benefits. Additionally, accounting helps in maintaining accurate tax records and assessing the financial health of the institution by analyzing its financial statements and reports.

A compensating balance refers to the portion of a demand deposit that a customer maintains as a support for its existing or maturing obligations. It is a minimum balance that a customer is required to maintain in their account with a bank, usually as a condition for obtaining a loan or other banking services. This balance acts as collateral or security for the bank, ensuring that the customer has sufficient funds to cover their obligations. Therefore, compensating balance is the correct answer in this context.

A voucher is the written evidence that supports a business transaction. It is a document that provides proof of the transaction and includes details such as the amount, date, and purpose of the transaction. Vouchers are used to maintain accurate records and to ensure accountability in financial transactions. They are typically attached to the relevant documents, such as invoices or receipts, and are kept as supporting evidence for auditing and verification purposes.

Trade discounts are generally not used to avoid frequent changes in catalogues. This is because trade discounts are typically offered to customers as a reduction in the list price of a product, and they are used to encourage larger purchases or to reward customer loyalty. The purpose of trade discounts is not related to catalogues or pricing strategies, but rather to incentivize customers to buy more or to buy more frequently. Therefore, the correct answer is avoid frequent changes in catalogues.

Dividends and interest receivable would be classified as nontrade receivables because they are not related to the normal operations of a business. Trade receivables typically refer to amounts owed by customers for the sale of goods or services, while notes receivable are formal written promises to pay a specific amount at a future date. Dividends and interest receivable, on the other hand, are usually related to investments or financial instruments and are not directly tied to the business's core operations. Therefore, they would be classified as nontrade receivables.

Activity ratios are the correct answer because they measure how efficiently a firm is utilizing its assets and resources. These ratios assess the company's ability to generate sales and manage its inventory, receivables, and payables. By analyzing activity ratios such as inventory turnover, accounts receivable turnover, and asset turnover, investors and analysts can evaluate the effectiveness of a company's operations and its ability to generate profits. Therefore, activity ratios provide insight into how well a firm is employing its assets to generate revenue and can help assess its overall efficiency.