(a) What is a suspense Account (b) Differentiate... | WAEC SSCE - Financial Accounting - 2017

Question 1 Report

(a) What is a suspense Account

(b) Differentiate between the following;
(i) Provisions and Reserves
(ii) Expenses and Revenue
(iii) Capital reserves and Revenue reserves

Answer

(a) Suspense account

A suspense account is a temporary account into which an amount is placed either when the source or correct account of a transaction is unknown (pending investigation), or when the totals of a trial balance fail to agree, the difference being held there pending the location and correction of the errors. Once the errors are found and corrected, the suspense account is cleared and closes to nil.

(b)(i) Provisions and Reserves

Provisions	Reserves
They are charges against profit.	They are appropriations of profit.
The exact amount cannot be estimated accurately.	They are specific amounts set aside out of profit.
They are created to provide for known liabilities or expected losses.	They are not designed to meet any known liability.
They reduce the profit (and hence the funds) of the business.	They form part of the business capital.
They are meant for a specific purpose.	They may be used for a specific or a general purpose.

(b)(ii) Expenses and Revenue

Expenses	Revenue
They are outflows of economic benefits arising from the ordinary operating activities of an organisation.	They are inflows of economic benefits arising from the ordinary operating activities of an organisation.
They result in increases in liabilities or decreases in assets, and reduce profit.	They result in increases in assets or decreases in liabilities, and increase profit.
Examples: rent, wages, electricity.	Examples: sales, commission received, rent received.

(b)(iii) Capital reserves and Revenue reserves

Capital reserves	Revenue reserves
They are created out of capital (non-trading) profits such as share premium, profit on revaluation or sale of fixed assets.	They are created out of normal trading profits through the profit and loss appropriation account.
They are not available for distribution as cash dividend.	They are available for distribution as dividend.
They are used to finance long-term projects or to write off capital expenses.	They are retained in the business to meet future contingencies and strengthen its financial position.

Read lesson note on Miscellaneous Accounts (WAEC)

Read lesson note on Provisions And Reserves (WAEC)

Answer Details

(a) Suspense account

(b)(i) Provisions and Reserves

Provisions	Reserves
They are charges against profit.	They are appropriations of profit.
The exact amount cannot be estimated accurately.	They are specific amounts set aside out of profit.
They are created to provide for known liabilities or expected losses.	They are not designed to meet any known liability.
They reduce the profit (and hence the funds) of the business.	They form part of the business capital.
They are meant for a specific purpose.	They may be used for a specific or a general purpose.

(b)(ii) Expenses and Revenue

Expenses	Revenue
They are outflows of economic benefits arising from the ordinary operating activities of an organisation.	They are inflows of economic benefits arising from the ordinary operating activities of an organisation.
They result in increases in liabilities or decreases in assets, and reduce profit.	They result in increases in assets or decreases in liabilities, and increase profit.
Examples: rent, wages, electricity.	Examples: sales, commission received, rent received.

(b)(iii) Capital reserves and Revenue reserves

Capital reserves	Revenue reserves
They are created out of capital (non-trading) profits such as share premium, profit on revaluation or sale of fixed assets.	They are created out of normal trading profits through the profit and loss appropriation account.
They are not available for distribution as cash dividend.	They are available for distribution as dividend.
They are used to finance long-term projects or to write off capital expenses.	They are retained in the business to meet future contingencies and strengthen its financial position.

Read lesson note on Miscellaneous Accounts (WAEC)

Read lesson note on Provisions And Reserves (WAEC)

Miscellaneous Accounts

Provisions And Reserves

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(a) What is a suspense Account (b) Differentiate between the following; (i) Provisions and Reserves (ii) Expenses and Revenue (iii) Capital reserves and Rev...

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(a) What is a suspense Account (b) Differentiate between the following; (i) Provisions and Reserves (ii) Expenses and Revenue (iii) Capital reserves and Rev...

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