JAMB UTME - Principles of Accounts - 2025

Where partners have not drawn up a formal partnership agreement, the default rules that apply are those laid down by partnership law. Under these default rules, partners are not entitled to interest on the capital they have contributed to the business.

However, if a partner contributes money to the business beyond the capital they agreed to bring in, that additional contribution is treated in the same way as a loan made to the firm rather than as ordinary capital. Loans (or advances) made by a partner in excess of agreed capital attract interest at the default statutory rate of 5% per annum, charged as an expense in the Profit and Loss Account before the residual profit is shared among the partners.

This distinction matters because it separates two very different defaults: no interest at all on agreed capital contributions, but a fixed 5% on anything advanced beyond that agreed capital, since the excess behaves economically like a loan rather than an equity stake.

When a partnership question has no partnership agreement and mentions "additional" contributions beyond the agreed capital, apply the 5% default interest rate rather than assuming no interest is payable at all.

A dividend declared as a percentage is calculated on the nominal (face) value of the total share capital, not on the number of shares alone. The nominal value of the total ordinary share capital must first be found before the percentage can be applied.

1. Find the total nominal value of the share capital: \[ 1{,}000{,}000 \text{ shares} \times \text{GH¢}2.00 = \text{GH¢}2{,}000{,}000 \]
2. Apply the declared dividend rate of 10% to this total nominal value: \[ 10\% \times \text{GH¢}2{,}000{,}000 = \text{GH¢}200{,}000 \]

The amount of dividend declared is therefore GH¢200,000. A common error is to apply the 10% directly to the number of shares (1,000,000) instead of to their total nominal value, which produces the smaller, incorrect figure of GH¢100,000; the percentage must always be applied to the monetary value of the capital, not the share count.

Examination reminder: always convert the number of shares into their total nominal value first, then apply the declared dividend percentage to that monetary total.

The accounting equation, capital plus liabilities equals assets, defines how the resources of a business and the claims on those resources relate to one another.

Assets are the resources that a business owns and controls, and from which it expects to derive future economic benefit, examples include cash, inventory, buildings, and equipment. Capital represents the owner's claim on the business, the amount the owner has invested and is owed by the business. Liabilities represent outside parties' claims, amounts the business owes to lenders, suppliers, or other creditors. Drawings are amounts of cash or goods the owner withdraws from the business for personal use, and are deducted from capital rather than being a resource the business owns.

Because assets are defined precisely as the resources a business owns and controls, this is the correct classification for such resources.

Examination tip: keep the accounting equation in mind, resources the business owns are assets, while capital and liabilities describe who has a claim on those resources.

An overdraft means the bank balance is negative from the business's point of view: the business owes the bank GH¢190,000. When a debtor pays money directly into the bank account, that receipt reduces the amount owed to the bank.

Treating the overdraft as a negative balance and adding the deposit gives the new position:

Because the result is positive, the account now holds GH¢210,000 in the business's favour rather than being overdrawn. The deposit of GH¢400,000 was large enough not only to clear the GH¢190,000 owed to the bank but to leave a surplus of GH¢210,000 in the account.

A common mistake is to add the two figures together as if both were on the same side (giving GH¢590,000 overdrawn), forgetting that an overdraft is a liability that a deposit first cancels out before any surplus can build up. Always convert the overdraft to a negative figure before combining it with new deposits.

In departmental accounts, shared expenses that cannot be traced to a single department must be apportioned (shared out) between departments on some fair, logical basis that reflects how each department actually causes or benefits from the cost.

Rent is a charge for occupying physical space, so the fairest basis for sharing it out is the amount of floor area each department occupies. A department that takes up more space is naturally responsible for a larger share of the rent, regardless of how much it sells, purchases, or how many staff it employs.

Volume of sales, purchases, and number of personnel are appropriate bases for apportioning other kinds of expenses (for example, selling expenses might follow sales volume, and staff-related costs might follow personnel numbers), but none of these measures how much space a department occupies, so none of them fairly reflects the burden of a rent charge.

When apportioning any shared expense, always match the basis to what actually drives that cost: for rent and similar occupancy costs, that driver is floor area.

When a fixed asset is disposed of, the profit or loss on disposal is the difference between the disposal proceeds and the asset's net book value (NBV) at the time of disposal, where the net book value is what remains of the original cost after accumulated depreciation has been deducted.

1. Find the net book value at disposal. Since the disposal produced a profit, the proceeds exceeded the net book value by the amount of that profit: \[ \text{NBV} = \text{Disposal proceeds} - \text{Profit on disposal} = \#45{,}000 - \#7{,}500 = \#37{,}500 \]
2. Find the accumulated depreciation by subtracting the net book value from the original cost: \[ \text{Accumulated depreciation} = \text{Cost} - \text{NBV} = \#150{,}000 - \#37{,}500 = \#112{,}500 \]

The accumulated depreciation at the time of disposal was therefore #112,500. A frequent mistake is to subtract the disposal proceeds directly from the cost without first accounting for the profit, which skips the step of finding the true net book value and produces the wrong figure.

Examination reminder: on a disposal question, always establish the net book value first by adjusting the proceeds for the stated profit or loss, then subtract that net book value from the original cost to find accumulated depreciation.

Every share has a nominal (or par) value, which is the fixed face value stated on the share certificate and in the company's memorandum of association. Shares can be issued at exactly this nominal value, above it, or below it, and each situation has its own accounting term.

When shares are sold for less than their nominal value, they are said to be issued at a discount, and the shortfall between the nominal value and the (lower) issue price is recorded as a discount on issue of shares. If shares are sold for exactly their nominal value, they are issued at par; if sold for more than their nominal value, they are issued at a premium, with the excess credited to a share premium account. "At a loss" is not the correct technical term used in share issue accounting for this situation, even though the company receives less cash than the shares' face value.

Examination reminder: keep the three issue-price terms distinct: at par (equal to nominal value), at a premium (above nominal value), and at a discount (below nominal value); each has its own specific accounting treatment.

The Sales Ledger Control Account mirrors, in total, all the individual debtor accounts kept in the sales ledger. It opens with the total debtors owed at the start of the period, is debited with everything that increases what customers owe, and is credited with everything that reduces what customers owe.

Cash received from debtors, discount allowed to them for prompt payment, and returns inward (goods customers send back) all reduce the amount debtors owe, so each is correctly recorded as a credit entry in this account.

A dishonoured cheque works the opposite way. When a customer's cheque is not honoured by the bank, the amount that customer owes is not actually settled after all, so the debt has to be reinstated. This is recorded as a debit entry in the Sales Ledger Control Account, increasing the balance back up, not a credit entry reducing it.

Examination reminder: think of the control account from the business's point of view: anything that genuinely reduces what customers owe (cash, discount allowed, returns, bad debts, bills receivable) is a credit; anything that increases or restores the debt, such as further credit sales, dishonoured cheques, or interest charged, is a debit.

A gross profit markup is always calculated as a percentage of cost, not of selling price. This means selling price equals cost plus the markup percentage applied to cost.

Letting the cost of sales be \( C \), the relationship is:

Substituting the given sales figure:

So the cost of sales is D 9,600, and the gross profit on this sale is \( 12{,}000 - 9{,}600 = 2{,}400 \), which checks out as 25% of the D 9,600 cost, confirming the markup was applied correctly.

A common mistake is to calculate 25% of the sales figure directly (giving D 3,000 or D 9,000) as if markup were a margin on selling price. Remember: markup is a percentage of cost, while margin (gross profit percentage on sales) is a percentage of selling price; always check which one a question specifies before dividing or multiplying.

The imprest system fixes petty cash at a set amount, here \( \text{#}4{,}000 \). At the start of December, \( \text{#}517 \) remained in hand, and the cashier was reimbursed \( \text{#}3{,}483 \) to restore the float back to the full imprest amount: \( \text{#}517 + \text{#}3{,}483 = \text{#}4{,}000 \).

During the month, the following payments were made out of petty cash:

The personal (ledger) column in an analysed petty cash book is reserved for payments made to, or received from, a named individual or business whose account is kept in the sales or purchases ledger, rather than for a general expense heading such as stationery, postage, or wages.

Of the seven transactions listed, only the payment to J. Thomas, a creditor, involves a personal account. This \( \text{#}536 \) payment reduces the amount owed to J. Thomas and must be posted to his individual account in the purchases ledger, in addition to being recorded in the petty cash book itself. Notebooks, wages, postage stamps, and envelopes are all impersonal expense items posted to their respective nominal ledger expense accounts, not to a personal account.

Examination reminder: the giveaway for a personal-ledger posting is a named individual or trader in the transaction description; expense words like "wages," "postage," or "stationery" signal a nominal account instead.

A trial balance is a working schedule prepared by listing every account balance carried in the general ledger, side by side under debit and credit columns, at a given date.

Three of the statements describe genuine, well-established purposes of a trial balance. Listing the balances in the general ledger is literally what a trial balance is. Checking that total debits equal total credits proves the arithmetical accuracy of the double-entry postings (though it cannot catch every type of error, such as an error of omission or an error of principle). It is also the summary document from which the trading account, profit and loss account, and balance sheet are prepared.

The statement that does not belong describes a different schedule entirely: a list of balances taken from a subsidiary (sales or purchases) ledger and compared against the related control account in the general ledger. That comparison is carried out through a schedule of debtors or schedule of creditors, reconciled against the Sales Ledger Control Account or Purchases Ledger Control Account. The trial balance, by contrast, is drawn from the general ledger itself, not from a subsidiary ledger, and it is not used to test agreement with a control account.

A common slip is to blur the trial balance with the schedule of debtors/creditors because both are "lists of balances used to check something agrees." Keep them separate: the trial balance checks that debits equal credits across the whole general ledger; the schedule of debtors or creditors checks that individual customer or supplier balances add up to the corresponding control account balance.

A daybook (also called a subsidiary book or book of prime entry) is used to record transactions of a particular type before they are posted to the ledger accounts. The sales daybook is the book of prime entry specifically for recording sales.

Sales daybooks record only credit sales of stock, that is, goods sold to customers on account rather than for immediate cash. Each entry is normally taken from a sales invoice issued to the customer and later posted to the individual customer's account in the sales ledger and, in total, to the sales account. Cash sales of stock are recorded in the cash book, since money changes hands immediately and no debtor is created. Sales of fixed assets, whether for cash or on credit, are not recorded in the sales daybook at all, because the sales daybook is reserved for the trading stock the business normally deals in, not for disposals of assets such as vehicles, machinery, or equipment.

Because the sales daybook is limited to credit transactions in trading stock, the correct description is credit sales of stock.

Examination tip: remember the daybook and its ledger destination together, the sales daybook feeds the debtors' individual accounts and the sales account, and it never contains cash transactions or fixed-asset disposals.

A provision for doubtful debts is an estimate, deducted from total debtors, of the amount of debt that the business expects it will not be able to collect. Because it is only an estimate, the provision is reviewed and adjusted at the end of each accounting period to match current expectations about which debts might go bad.

When the provision needed at the end of a period is smaller than the provision already carried forward from the previous period, the excess is no longer required. This excess is written back, and because it reverses an expense that had previously reduced profit, it increases the profit of the current period. In the profit and loss account, this decrease in the provision is therefore added to gross profit, in the same way as any other item of income, rather than being deducted as an expense.

An increase in the provision for doubtful debts, by comparison, would be treated as an expense and deducted from profit, since it represents a fresh charge against expected bad debts for the period.

Examination tip: treat a rising provision as an expense and a falling provision as income; only the change in the provision, not its full balance, passes through the profit and loss account each period.

The factory cost of production (also called the cost of goods manufactured) represents the total cost incurred in converting raw materials into finished goods within the factory. It is computed by combining all direct and indirect manufacturing costs and adjusting for any changes in work-in-progress.

The standard computation follows this structure:

1. Raw materials consumed = Opening stock of raw materials + Purchases of raw materials - Closing stock of raw materials
2. Prime cost = Raw materials consumed + Direct wages (direct labour)
3. Total factory cost = Prime cost + Factory overheads (indirect materials, indirect wages, factory rent, depreciation of factory machinery, etc.)
4. Factory cost of production = Total factory cost + Opening work-in-progress - Closing work-in-progress

Each step builds on the previous one. Raw materials consumed captures only the materials actually used in production, not the full amount purchased. Prime cost isolates the direct costs. Factory overheads add the indirect costs that support production but cannot be traced to a single product. Finally, the work-in-progress adjustment accounts for partially completed goods: opening WIP adds costs brought forward from the previous period, while closing WIP removes costs that relate to goods not yet finished.

Applying these steps to the figures in the manufacturing account provided, the factory cost of production is #56,300.

Common errors on this type of question include forgetting to adjust for work-in-progress (which would give an incorrect total factory cost figure), or subtracting opening WIP instead of adding it. Remember: opening WIP is added because those partially completed goods from last period are now being finished, adding to this period's output. Closing WIP is subtracted because those goods are not yet complete and their cost should not be included in the cost of finished production.

Expenditure in a business is classified as either capital expenditure or revenue expenditure, and the distinction matters because it determines how an item is treated in the final accounts.

Capital expenditure is money spent to acquire, improve, or extend the earning capacity of fixed assets, items such as land, buildings, machinery, and equipment that will be used in the business over more than one accounting period. Because the benefit lasts for several years, this cost is recorded on the statement of financial position (balance sheet) as an asset and is only gradually charged to profit through depreciation.

Money spent on buying goods for resale is revenue expenditure, since the goods are consumed within the trading cycle and their cost appears in the trading account as cost of sales. The day-to-day cost of running a business, such as rent, wages, and stationery, is also revenue expenditure, charged in full to the profit and loss account of the period in which it is incurred. Extra capital paid in by the proprietor is neither type of expenditure; it is an increase in the owner's investment in the business, recorded in the capital account.

Because it is money used to obtain assets that will generate benefits over several years, capital expenditure is correctly described as money spent on acquiring fixed assets.

Examination tip: ask whether the spending buys something the business will keep and use for years (capital expenditure) or something that is used up within the current trading period (revenue expenditure).

When a head office supplies goods to its branches, the usual practice, unless the question states an arrangement involving a mark-up (invoicing at selling price with a "loading" for unrealised profit), is to issue the goods at cost price, that is, the price the head office itself paid for them.

Issuing goods at cost keeps the branch's stock records straightforward: the branch simply carries the goods at what they cost the business as a whole, and any profit is only recognised when the branch actually sells the goods to outside customers. This avoids recording unearned or unrealised profit within the business's own internal transfers between head office and branch.

Prime cost and production cost describe cost concepts used in manufacturing to build up the cost of producing goods, not the value at which finished goods are transferred internally to a branch; net realisable value is the estimated selling price less costs to complete and sell, which is used for valuing stock at the lower of cost and net realisable value, not for internal goods transfers to branches.

Unless a question specifically describes a branch invoicing arrangement with an added mark-up, treat goods sent to branches as valued at cost price.

The debtors ledger (also called the sales ledger) contains the individual accounts of customers who owe the business money for goods bought on credit. Entries in this ledger must originate from documents that record credit sales transactions.

A sales invoice is issued by the business to a customer at the point a credit sale is made, and it states what the customer owes; this is the primary source document used to post amounts owed into the customer's individual account in the debtors ledger. Suppliers' invoices, by contrast, are received from suppliers when the business itself buys on credit, and they are posted to the creditors (purchases) ledger, not the debtors ledger. Payment vouchers evidence cash payments made by the business, and returns outward notes record goods the business sends back to its own suppliers, both of these relate to purchases and payments, not to sales made to customers.

Because it is the document that evidences the credit sale creating the debt in the first place, the sales invoice is the primary source of entry into the debtors ledger.

Examination tip: match each source document to the ledger it feeds; sales invoices and credit notes to customers feed the debtors ledger, while suppliers' invoices and returns outward notes feed the creditors ledger.

Prime cost is the total of all direct costs incurred in manufacturing a product. It includes only those costs that can be traced directly to production units - specifically direct materials consumed and direct wages (direct labour). Factory overheads, indirect wages, depreciation of plant, and other indirect manufacturing expenses are excluded from prime cost because they are indirect costs.

The formula is:

\[ \text{Prime Cost} = \text{Direct Materials Consumed} + \text{Direct Wages} \]

where:

\[ \text{Direct Materials Consumed} = \text{Opening Stock of Raw Materials} + \text{Purchases of Raw Materials} + \text{Carriage Inwards (if any)} - \text{Closing Stock of Raw Materials} \]

Applying this formula to the data provided in the table, the prime cost works out to #49,950.

A common mistake is to include factory overheads (such as factory rent, power, depreciation of machinery, or indirect wages) in the prime cost. These items are part of factory cost (also called production cost or works cost), not prime cost. Factory cost = Prime cost + Factory overheads. Including any overhead figure would overstate the prime cost and lead to an incorrect, higher total such as #53,000 or #52,750.

Another error is miscalculating direct materials consumed by omitting the stock adjustment. If opening or closing stock of raw materials is ignored, the materials figure will be wrong, producing a distorted prime cost.

Exam tip: When a question asks for prime cost, include only direct materials consumed and direct wages. Stop there. Do not add any item described as "overhead", "indirect", "factory rent", "depreciation", or "factory expenses".

Production cost (also called cost of production or factory cost) is the total amount spent to manufacture finished goods. It is calculated using a manufacturing account and includes three main components: raw materials consumed, direct labour, and factory overheads, adjusted for any changes in work in progress.

The formula is:

\[\text{Production Cost} = \text{Prime Cost} + \text{Factory Overheads} + \text{Opening WIP} - \text{Closing WIP}\]

where:

• Prime Cost = Direct Materials Consumed + Direct Wages + Direct Expenses
• Direct Materials Consumed = Opening Stock of Raw Materials + Purchases of Raw Materials - Closing Stock of Raw Materials
• Factory Overheads = all indirect manufacturing costs such as factory rent, power, depreciation of factory equipment, indirect wages, and indirect materials
• Work in Progress (WIP) = goods that are partially completed at the start or end of the period

To solve the question, extract each figure from the data table and apply them in order:

1. Calculate raw materials consumed from the opening stock, purchases, and closing stock of raw materials.
2. Add direct wages and any direct expenses to get the prime cost.
3. Add all factory overheads to the prime cost.
4. Add the opening work in progress and subtract the closing work in progress.

Applying this method to the figures provided in the question yields a production cost of #55,800.

Common errors that produce incorrect totals include forgetting to deduct the closing stock of raw materials (which overstates materials consumed), accidentally including administrative or selling expenses (which are not part of production cost), or omitting the work in progress adjustment. Administrative salaries, office rent, and distribution costs belong in the profit and loss account, not the manufacturing account.

When answering production cost questions, always distinguish between factory-level costs (which form production cost) and non-factory costs (which do not). Only costs incurred up to the point where goods leave the factory floor are included.

The document that sets out the internal rules for running and managing a company, such as the rights of shareholders, the powers and duties of directors, and procedures for meetings and voting, is the Articles of Association.

The Articles govern the company's internal affairs and how it is administered day to day, which distinguishes them from the other documents listed. The Memorandum of Association instead defines the company's relationship with the outside world, stating its name, objectives, and the scope of activities it is legally permitted to undertake. A prospectus is an invitation to the public to subscribe for shares or debentures, used when raising capital, not a rulebook for internal management. A certificate of incorporation is the legal document issued by the registrar confirming that the company has been formed and now exists as a separate legal entity; it does not contain rules of internal management either.

A helpful way to separate the two founding documents: the Memorandum defines what the company can do and its relationship with outsiders, while the Articles define how the company runs itself internally.

The trading account is the first section of the final accounts of a trading business. It brings together net sales for the period with the cost of the goods actually sold, which is calculated as opening stock plus purchases (adjusted for carriage inwards and returns) less closing stock. The difference between sales and this cost of goods sold gives the gross profit, which is then carried down to the profit and loss account.

Cost of goods sold is therefore determined directly within the trading account; it is the figure the account is built around. Net profit is a different, later figure, arrived at only after the profit and loss account deducts operating expenses (and adds other income) from the gross profit brought down from the trading account. Prime cost and factory overheads belong to manufacturing accounting: prime cost is the direct cost of production (direct materials, direct labour, and direct expenses), and factory overheads are the indirect costs of running the factory; both are computed in a manufacturing account, which feeds its finished output cost into the trading account of a manufacturing business, rather than being computed in the trading account itself.

Examination reminder: keep the sequence straight: manufacturing account (prime cost, factory overheads) feeds into the trading account (cost of goods sold, gross profit), which feeds into the profit and loss account (net profit).

Ordinary shares (also called equity shares) do not carry a fixed rate of dividend. Instead, ordinary shareholders receive whatever the directors decide to distribute after all other prior claims, including preference dividends, have been met, and after profits available for distribution have been determined for the year.

This means the dividend an ordinary shareholder receives rises and falls directly with how profitable the business has been: a strong profit year can bring a generous dividend, while a poor year, or a loss, can mean no dividend at all. Preference shares, by contrast, carry a fixed percentage rate that is set in advance and paid ahead of ordinary dividends whenever sufficient profit exists; bonus shares are additional shares issued to existing shareholders out of reserves rather than shares that carry a dividend right of their own, and forfeited shares are shares taken back by the company from a shareholder who failed to pay calls due on them.

Examination reminder: the defining feature of ordinary shares is variability: the size of the dividend depends entirely on profit performance and the directors' decision each year, unlike the fixed, prior-ranking rate attached to preference shares.

The imprest system is a method of controlling petty cash: a cashier is given a fixed float (the imprest amount) and reimbursed at the end of each period for exactly what was spent, restoring the float to its original level.

Its main advantage is that it provides a convenient, controlled way of meeting small, routine items of expenditure, such as stationery, postage, or minor travel costs, without going through the full cheque or bank payment process for every tiny transaction, while still keeping records tight because reimbursement is only made against vouchers for actual spending.

The imprest system has nothing to do with making high profits, since it is a cash-control mechanism rather than a source of income; it is not designed to reward the person holding the float, since any cash held is business money, not personal remuneration; and it does not, by itself, make the preparation of final accounts easier, since petty cash is only one small part of the overall accounting records.

When a question asks about the purpose or advantage of the imprest system, think "control over small cash expenses," since that is the concept being tested.

A spreadsheet application is software designed to organise data into rows and columns of cells, allowing calculations, formulas, and data analysis to be performed automatically. Microsoft Excel is the most widely used example of this category of software, built specifically for entering figures, applying formulas, and generating charts or summaries from tabular data, which is exactly what accounting and business record-keeping requires.

The other items serve entirely different purposes. The Internet is a global network for accessing and sharing information, not an application for organising figures. Windows is an operating system that manages the computer's hardware and runs other programs, including spreadsheet software, rather than being a spreadsheet itself. Word is a word-processing application, used to create and format text documents such as letters and reports, not to perform tabular calculations.

Examination reminder: when identifying software categories, focus on the primary function: word processors handle text, spreadsheets handle numerical/tabular data and calculations, and operating systems manage the computer as a whole.

Every share has a nominal (face) value stated on its certificate, which is the amount originally set for that share when the company was formed. A company may issue new shares for less than this stated nominal value, and shares sold on those terms are described as being issued at a discount.

Shares sold at exactly their stated nominal value are said to be issued at face value, while shares sold for more than their nominal value are issued at a premium, with the extra amount recorded separately as a share premium. "Cumulative value" is not a recognised term for the price at which shares are issued; cumulative instead describes certain types of preference shares whose unpaid dividends carry forward to future years. Because the question specifically describes shares issued below their nominal value, the correct term is issued at a discount.

Examination reminder: keep the three issue terms distinct by comparing the issue price to the nominal value: below it is at a discount, equal to it is at face value, and above it is at a premium.

When a business is overdrawn at the bank, its cash book bank column shows a credit balance, because the bank column is being treated as a liability rather than an asset. Bank reconciliation then explains the difference between this cash book overdraft figure and the overdraft shown on the bank statement.

An uncredited cheque is a cheque the business has already paid into the bank and recorded in its own cash book (which reduces the recorded overdraft), but which the bank has not yet processed and added to the account. Because the bank has not yet acted on it, the bank statement still shows a larger overdraft than the cash book does, by exactly the value of that cheque.

To move from the cash book (credit/overdraft) balance to the bank statement balance, this timing gap has to be added back: the cash book overdraft understates what the bank statement currently shows, so the amount of the uncredited cheque is added to the cash book balance to arrive at the bank statement figure.

Deducting the uncredited cheques from the cash book, or adding them straight to the bank statement figure without first starting from the cash book, would give the wrong reconciled amount, because it reverses the direction of the timing difference.

Examination reminder: when the cash book shows an overdraft, work out whether an item makes the bank statement's overdraft larger or smaller than the cash book's, and adjust in that direction rather than relying on the rule memorised for a favourable (debit) cash book balance.

This question requires you to determine the surplus of a non-profit organisation for the year ended 31st December 2016, using data from its Receipts and Payments account.

A Receipts and Payments account is a summarised cash book that records all cash and bank transactions of a non-profit organisation over a given period. It lists all money received (receipts) on the debit side and all money paid out (payments) on the credit side. To find the surplus (or deficit) for the year, you must prepare an Income and Expenditure account from the Receipts and Payments data.

The key steps are:

1. Identify all revenue income items from the receipts side. Revenue income includes items such as subscriptions, entrance fees (when treated as revenue), donations for general purposes, and fees received for services. Exclude capital receipts (such as sale of fixed assets or life membership fees) and the opening balance, since these are not income earned during the year.
2. Identify all revenue expenditure items from the payments side. Revenue expenditure includes items such as rent, salaries, electricity, stationery, postage, and repairs. Exclude capital payments (such as purchase of equipment or furniture) and the closing balance.
3. Calculate: Surplus = Total Revenue Income - Total Revenue Expenditure.

From the data provided in the Receipts and Payments account, the total revenue income for the year amounts to #2,640. After deducting the total revenue expenditure of #990, the surplus for the year is:

\[ \text{Surplus} = \#2{,}640 - \#990 = \#1{,}650 \]

The surplus for the year is therefore #1,650.

A common mistake is to confuse the surplus with the excess of total receipts over total payments (which would include capital items and opening/closing balances). The surplus relates only to revenue items and represents the excess of income earned over expenditure incurred during the accounting period.

In a cash book, the total income for the month is the sum of all cash received during the period, excluding the opening balance brought forward. The balance brought forward (balance b/f) represents cash carried over from the previous period and is not income earned in the current month.

From the cash book of Ibusah for February 2019, the receipts (debit) side includes:

• An opening balance brought forward from the previous month
• Income items received during February, such as commission received and cash received from debtors (e.g. Ojah)

A common error is to add the opening balance to the income items. The total of the entire debit side of the cash book (including the opening balance) comes to D 478,300, but this figure represents total receipts, not total income. Total income counts only the money actually earned or received as revenue during February.

Adding only the income transactions recorded during the month gives:

\[ \text{Total income} = \text{Sum of all income items (excluding balance b/f)} = \text{D } 278{,}000 \]

The figure D 154,800 is the total of the payments (credit) side of the cash book, which represents total expenditure, not income. The figure D 180,000 represents only one of the individual income items (commission received), not the full total.

When working with cash book questions, always distinguish between the balance brought forward (which is a carried-over asset, not current income) and the actual income transactions of the period.

A self-balancing account is one that is designed to balance on its own, independent of the rest of the ledger system, by recording, in total, the same entries that are also posted individually elsewhere. The control account is the classic example: the Sales Ledger Control Account, for instance, is debited and credited with the totals of all transactions affecting debtors (total credit sales, total cash received, total discount allowed, and so on), taken straight from the books of original entry, so it can be balanced entirely on its own and its balance checked against the sum of the individual debtor balances in the sales ledger.

A creditors account or a debtors account, taken individually, is simply one person's account within a subsidiary ledger; it does not balance itself independently in the way a control account does, since it exists as part of a wider ledger that is reconciled through the control account. A suspense account is a temporary account opened only when a trial balance fails to balance, holding the difference until the underlying errors are found and corrected; it is not a permanent self-balancing device.

Examination reminder: "self-balancing" is the specific technical description of a control account; do not confuse it with the general act of any account eventually having a balancing figure.

The Sales Ledger Control Account (Debtors Control Account) is built up during the year from total credit sales, cash received, discounts allowed, returns inward, bad debts, and similar movements affecting debtors, and it mirrors, in total, every individual customer account kept in the sales ledger.

Whatever balance remains on this account at the end of the accounting year is, by definition, the total of all amounts still owed by customers that have not yet been collected, written off, or otherwise cleared. In other words, it represents the total trade debtors outstanding at that date, and this is the figure that appears as trade debtors (accounts receivable) under current assets in the balance sheet.

It is not simply the total credit sales for the year, since credit sales are only one side of the account; receipts, discounts, and returns during the year have already reduced that figure down to what is still owed. It excludes cash sales entirely, since cash sales never pass through this account at all, and it is not merely the total transferred from the Sales Day Book, which records only credit sales made, not the net amount still outstanding after collections and adjustments.

Examination reminder: the closing balance on any control account represents the net outstanding position at that date, not a single component such as sales or receipts alone.

The imprest system fixes petty cash at a set amount, here \( \text{#}4{,}000 \). At the start of December, \( \text{#}517 \) remained in hand, and the cashier was reimbursed \( \text{#}3{,}483 \) to restore the float back to the full imprest amount: \( \text{#}517 + \text{#}3{,}483 = \text{#}4{,}000 \).

During the month, the following payments were made out of petty cash:

In an analysed petty cash book, each payment is recorded once in the total column and again in the analysis column that matches its nature. Stationery covers items used for writing and correspondence, which here means the notebooks and the envelopes:

The postage stamps ( \( \text{#}375 + \text{#}210 = \text{#}585 \) ) belong under a separate postage heading rather than stationery, since they are used to send items rather than to write on or contain them. Wages and the payment to the creditor are unrelated categories entirely.

Examination reminder: when a petty cash book asks for spending "on stationery," only include items genuinely used for writing, filing, or packaging correspondence; postage stamps, though often listed nearby, belong to their own analysis column.

This question tests the treatment of subscriptions on the balance sheet of a club or society. In non-profit accounting, subscriptions are the periodic fees members pay to belong to the organisation. At the end of a financial year, any subscriptions that members still owe (subscriptions in arrears) represent money the club expects to collect, while any subscriptions members have paid ahead of time (subscriptions in advance) represent an obligation the club owes back in the form of future membership services.

Subscriptions in arrears are classified as a current asset on the balance sheet because they are amounts receivable from members - effectively debtors. Subscriptions received in advance are classified as a current liability because the club has received payment for a service period it has not yet provided.

From the data provided, the subscriptions in arrears as at 31st December, 2014 amount to \(\naira 400\). Since these are amounts owed to the club by its members, they appear on the balance sheet as a current asset of \(\naira 400\).

Examination tip: When a question asks how subscriptions appear on the balance sheet, always determine whether they are in arrears (current asset/debtor) or in advance (current liability/creditor). Do not confuse the two - arrears benefit the club (an asset it expects to collect), while advance payments obligate the club (a liability it must honour).

In the traditional classification of ledger accounts, every account is grouped as personal, real, or nominal. Personal accounts relate to individuals, firms, or organisations that the business owes money to or is owed money by. Nominal accounts record income and expenses, such as rent, wages, or commission. Real accounts record the tangible assets that a business owns and can physically possess, such as land, buildings, motor vehicles, machinery, and furniture; the golden rule applied to them is "debit what comes in, credit what goes out."

A motor vehicle account, a building account, and a furniture account each represent a physical, tangible asset that the business can see and touch, so each is a real account.

A patent, by contrast, is an intangible asset. It represents a legal right to exclusive use of an invention or process rather than a physical object, so it does not fit the traditional definition of a real account built around tangible property. A patent account is more appropriately treated as representing intangible fixed assets, which are kept separate in classification from the tangible real accounts.

Because it lacks physical substance while the other three accounts represent items the business can physically hold, the patent account is the one that is not a real account.

Examination tip: when a question separates "real" from other assets, check whether the item is physical property (real account) or an intangible legal right, such as a patent, trademark, or goodwill.

This question tests the ability to identify and sum up income items in a Receipts and Payments Account of a non-profit organisation (such as a club or society).

A Receipts and Payments Account is a summary of all cash and bank transactions during a period. The receipts (debit) side lists all money coming in, and the payments (credit) side lists all money going out. However, not every item on the receipts side counts as income.

To find the total income received for the year, you must include only those receipt items that represent revenue or income earned during the year. These typically include:

• Subscriptions received
• Entrance fees
• Donations received
• Hall hire or rental income
• Proceeds from fundraising activities

You must exclude the following from total income:

• Opening balance (balance brought forward from the previous year) - this is not income; it is simply the cash or bank balance the organisation started the year with
• Capital receipts such as proceeds from sale of fixed assets or investments, and loans received - these are not revenue income

By adding together all the income items on the receipts side of the account (excluding the opening balance and any capital receipts), the total income received for the year amounts to #2,640.

Exam tip: When asked for "total income received," always exclude the opening cash/bank balance brought forward. The opening balance represents funds already held, not income earned during the current period.

In public sector (government) accounting, the main budget statement is divided by a dividing line that separates ordinary recurrent and capital revenue and expenditure, which are the items that have been formally planned for and approved in the year's budget, from special or unplanned transactions that fall outside the normal appropriation.

Items placed above the line are the regular revenue and expenditure heads that were anticipated and included when the budget was drawn up. Items placed below the line are transactions that were not part of that planned budget for the year, such as unforeseen financing transactions, supplementary items, or receipts and payments that arise outside the normal budgeted programme. Describing an item as "below-the-line" therefore signals that it was not budgeted for in the current fiscal year.

A common misconception is to treat "below-the-line" as meaning the amount fell short of what was budgeted. That is incorrect: the term is about whether an item appears in the approved budget at all, not about whether a budgeted figure was met or exceeded.

When you see "above/below the line" in a government accounting question, check whether the item was part of the original budget provision; if it was not, it belongs below the line.

A source document is the original paper or electronic record that provides evidence that a transaction occurred and supplies the details needed to make an entry in the books of account. Common source documents include invoices, debit notes, and credit notes, each of which is generated at the point a transaction takes place.

A debit note is issued, typically by a buyer to a supplier, to record that goods have been returned or an amount owed should be increased. A sales invoice is issued to a customer to evidence a credit sale and states what is owed. A credit note is issued to reduce an amount owed, most often when goods are returned or an overcharge is corrected. Each of these documents is created outside the accounting books themselves, to record the details of a specific transaction as it happens.

The journal proper, however, is not a document at all; it is a book of prime entry used to record transactions that do not belong in any of the other specialised daybooks, such as the correction of errors, the writing off of bad debts, or opening entries when a business starts. It is prepared from other evidence, such as narrations and supporting calculations, rather than being itself a piece of evidence generated by an external transaction.

Examination tip: distinguish source documents, which are the raw evidence of a transaction, from books of prime entry, such as the journal proper, which record and summarise that evidence.

The accounting concept being tested here is the realization concept. It states that revenue should be recognised in the accounting records at the point the goods (or services) are transferred to the customer and the business has a legal right to payment, regardless of when the cash is actually received.

This matters because it fixes the moment a sale is recorded: as soon as ownership and risk pass to the customer, the transaction is treated as complete for accounting purposes, and the sale is entered in the books, even if the customer is allowed to pay later on credit.

It is easy to confuse this with the matching concept, which is about pairing expenses with the revenue they helped generate in the same period, not about the timing of revenue recognition itself. The materiality concept concerns whether an item is significant enough to warrant separate disclosure, and the consistency concept concerns applying the same accounting methods from one period to the next; neither addresses when revenue should first be recorded.

When a question describes revenue being recognised "as goods change hands" rather than "as cash is received," that is the realization concept at work.

Prime cost is the total of all direct costs that can be traced straight to the units of a product: direct materials, direct labour, and direct expenses. It excludes indirect costs (overheads), which are costs that support production generally but cannot be linked to a specific unit.

Direct expenses, the cost of raw materials, and carriage on raw materials are all direct costs that go straight into making the product, so each of these forms part of prime cost. Depreciation of factory equipment, however, is a factory (production) overhead: it is the gradual wearing out of machinery used across many units of output over time, and it cannot be traced to any single unit produced. It is added to prime cost only later, when calculating the total factory (production) cost.

A useful way to remember the distinction: prime cost answers "what did it directly cost to make this specific unit?", while overheads, including depreciation, answer "what did it cost to run the factory in general?".

In examination questions, treat any depreciation charge as a factory overhead, not a prime cost item, unless the question specifically asks for total production cost.

When a partnership is dissolved, all assets are transferred out of their individual accounts into the realisation account, which is used to record the disposal of every asset and the settlement of every liability during the winding-up process.

If a partner takes over an asset personally instead of it being sold to an outside buyer, that partner is, in effect, "buying" the asset from the partnership using part of what is owed to them. The value of the asset taken over is therefore treated as a reduction in what the firm still owes that partner, so it is debited to the partner's capital account (reducing the balance due to them) and credited to the realisation account (because the realisation account is being compensated as if the asset had been sold).

The reverse entries (crediting the capital account and debiting the realisation account) would incorrectly increase what is owed to the partner, which is the opposite of what taking over an asset should do. Debiting and crediting the asset account itself is also wrong here, because the asset has already been transferred out of its own account into the realisation account at the start of dissolution.

Examination reminder: in dissolution accounting, always route asset disposals, including assets taken over by partners, through the realisation account; only cash actually received from a third-party sale is debited to the bank account instead.

In manufacturing accounting, the total cost of production is built up from three elements: direct materials, direct labour, and factory overheads. Factory overhead consists of all indirect costs of running the factory, costs that cannot be traced to a specific unit of production but are still necessary to keep the factory operating.

Raw materials consumed and manufacturing wages are direct costs. They can be traced straight to the units produced, raw materials become part of the physical product, and manufacturing wages are paid to workers directly engaged in making it, so both are charged as prime cost rather than overhead. Carriage inwards is the cost of transporting purchased raw materials to the factory; it is added to the cost of the materials themselves, making it part of direct material cost, not overhead.

Depreciation of plant and machinery, however, is an indirect cost. It reflects the wearing out of factory equipment generally, and cannot be linked to any single unit produced, it is incurred simply by running the factory over time. This makes it a classic example of factory overhead, alongside items such as factory rent, indirect factory wages, and factory power.

Examination tip: to identify factory overhead, ask whether a cost can be traced to a specific unit made (direct cost) or is incurred generally to keep the factory running (overhead); depreciation of equipment always falls into the second group.