JAMB UTME - Principles of Accounts - 2025

Detalles de la respuesta

A three-column cash book has three money columns on each side: one for discount, one for cash, and one for bank. This structure allows a business to record cash receipts and payments, bank receipts and payments, and any discount allowed or received, all within the same book, on the same line as the underlying transaction.

Because discounts are recorded in their own dedicated column alongside the cash and bank entries, the three-column cash book is the correct book for transactions that involve both a receipt or payment and an associated discount. A two-column cash book only has cash and bank columns, with no discount column, so discounts cannot be recorded there. An analytical cash book analyses payments or receipts across different expense or income headings rather than tracking discount separately, and a petty cash book is used only for small, day-to-day cash expenses, not for discounts on customer or supplier settlements.

Examination reminder: the presence of a discount column is the defining feature that separates the three-column cash book from the simpler two-column version; look for that column whenever a question mentions discount allowed or discount received.

Detalles de la respuesta

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.

Detalles de la respuesta

The asset cost \( \text{#}60{,}000 \) and is depreciated at \( 10\% \) of cost per year (straight-line method), so the annual depreciation charge is:

The asset was bought on 1 January 1997 and sold on 30 June 2001. Counting the full years 1997, 1998, 1999 and 2000, plus the half year from January to June 2001, gives a total useful life to the point of sale of \( 4.5 \) years.

The net book value at the date of sale is \( \text{#}60{,}000 - \text{#}27{,}000 = \text{#}33{,}000 \). Since the asset was sold for only \( \text{#}16{,}000 \), which is less than its net book value, the difference is a loss on disposal:

A profit would only arise if the sale proceeds exceeded the net book value; here proceeds are well below it, confirming a loss rather than a profit, and the figure of \( \text{#}16{,}000 \) alone is simply the sale proceeds, not the loss.

Examination reminder: always calculate accumulated depreciation for the exact number of years and part-years the asset was actually held before comparing net book value with sale proceeds.

Detalles de la respuesta

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.

Detalles de la respuesta

Revenue expenditure is spending incurred to keep a business running on a day-to-day basis, benefiting only the current accounting period, and is charged in full to the profit and loss account as an expense. Capital expenditure, by contrast, is spending that acquires or improves a long-term (fixed) asset, providing benefit over several years, and is added to the cost of the asset in the balance sheet rather than expensed immediately.

Buying fuel for a vehicle is a routine running cost: the fuel is consumed almost immediately in the ordinary course of using the vehicle, and it does not add any lasting value to the vehicle itself. This makes it revenue expenditure.

The remaining items all involve acquiring or upgrading a long-term asset. Purchasing a new engine improves and extends the useful life of the existing vehicle rather than merely maintaining it, so it is capital expenditure. Constructing an office wall creates a lasting structural improvement, and purchasing a plant acquires a fixed asset outright; both are capital expenditure.

Examination reminder: ask whether the spending merely keeps an existing asset running for now (revenue expenditure) or adds a new asset, or lasting improvement to one, that will benefit future periods (capital expenditure).

Detalles de la respuesta

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.

Detalles de la respuesta

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).

Detalles de la respuesta

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.

Detalles de la respuesta

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.

Detalles de la respuesta

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.

Detalles de la respuesta

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.

Detalles de la respuesta

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.

Detalles de la respuesta

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.

Detalles de la respuesta

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.

Detalles de la respuesta

The memorandum of association is a company's founding document, and one of its clauses states the total amount of share capital that the company is permitted to raise, as approved by the Registrar of Companies. This total figure is known by several interchangeable names in company accounting: registered capital, authorised capital, and nominal capital all refer to the same amount stated in that clause of the memorandum.

Issued capital is a different figure altogether. It refers only to the portion of the authorised capital that the company has actually offered and allotted to shareholders at a given time, which is often less than the full amount stated in the memorandum. Because issued capital describes shares actually given out to shareholders rather than the ceiling figure approved by the Registrar, it is not one of the terms used to describe the amount stated in the memorandum of association.

Examination reminder: registered, authorised, and nominal capital are synonyms for the memorandum's stated capital ceiling; issued capital is a separate, usually smaller, figure representing what has actually been allotted.

Detalles de la respuesta

Departmental accounts split a business's trading results into separate sections for each department, so that the sales, cost of sales, and expenses of each department are recorded and reported individually rather than being merged into a single overall figure.

The main reason for doing this is to find out how well each department is actually doing, that is, to ascertain departmental performance: which departments are generating strong profit margins, which ones are barely breaking even, and which ones may need corrective action such as better pricing, cost control, or even closure. Management can only make these decisions if the results are broken down by department rather than lumped together.

Labour turnover, stock levels, and staff numbers may all be tracked as part of running a department, but none of them is the core purpose of preparing departmental accounts. Those figures belong to human resource or stock-control records; departmental accounts exist specifically to measure and compare financial performance across departments.

Examination reminder: whenever a question asks about the objective of segmenting accounts (by department, by branch, or by product line), the underlying reason is almost always to evaluate performance and support internal decision-making, not to track operational statistics.

Detalles de la respuesta

Government accounting traditionally differs from private-sector financial accounting in the basis used to recognise transactions. Most government accounting systems record revenue and expenditure only when cash is actually received or paid out, rather than when the underlying economic event occurs.

This is known as the cash basis of accounting. It suits government operations because public funds must be tracked against actual cash releases and collections to ensure that spending stays within the cash appropriated by the legislature, and because government activity is not aimed at measuring profit in the way a business does.

This is also why the other features listed do not describe government accounting: government accounts are not normally prepared on an accrual basis (which would recognise income and expenses when earned or incurred, not when cash moves); fixed assets are generally not depreciated in traditional government accounts, since the emphasis is on cash control rather than matching the cost of an asset to the periods it benefits; and government accounting is not designed to report profit, since government is a service-providing, not profit-seeking, entity.

When a question contrasts government accounting with business accounting, the cash basis versus accrual basis distinction is usually the key feature being tested.

Detalles de la respuesta

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.

Detalles de la respuesta

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.

Detalles de la respuesta

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).

Detalles de la respuesta

General-purpose computers are traditionally classified according to how they process data, into three major types:

• Analog computers, which process continuously varying physical quantities (such as voltage, temperature, or pressure) rather than discrete numbers.
• Digital computers, which process data represented as discrete binary digits (0s and 1s); this is the type used in almost all modern desktops, laptops, and mobile devices.
• Hybrid computers, which combine both analog and digital processing techniques, commonly used in specialised scientific and medical equipment.

This three-way classification, based on the mode of data processing, is the standard one taught at this level, so the correct number of major types is three, not four, five, or six.

Examination reminder: keep this classification (analog, digital, hybrid) separate from a classification by size or capacity (supercomputer, mainframe, minicomputer, microcomputer), which is a different, size-based scheme with its own number of categories.

Detalles de la respuesta

When a company issues new shares to the public, the process moves through several distinct stages, each with its own name.

Application is the stage at which members of the public who wish to buy shares submit their application forms together with the application money to the company. Allotment is the next stage, in which the company's directors decide how many shares each successful applicant will actually receive and formally distributes those shares to them; it is at this point that the applicant legally becomes a shareholder. Allocation and apportionment are general terms for sharing something out, such as apportioning costs or allocating resources, but neither is the specific technical term used in company law for distributing shares to successful applicants.

Because it names the precise stage at which shares are formally given to those whose applications succeed, the correct term is allotment.

Examination tip: keep application (requesting shares) and allotment (receiving shares) in the correct order; allotment always follows application and is the point at which shareholder status begins.

Detalles de la respuesta

This question tests the accrual (matching) principle: the profit and loss account must reflect the rent expense that belongs to the accounting period, not merely the cash paid during that period. Two adjustments are needed when prepaid rent exists at both the start and end of the year.

Rent prepaid at the start of the year (1 January 2014) is an amount that was paid in the previous year but relates to 2014. Because it covers part of 2014, it must be added to the rent paid during 2014 to capture the full expense for the period.

Rent prepaid at the end of the year (31 December 2014) is an amount paid during 2014 but relates to 2015. Because it does not belong to 2014, it must be subtracted from the total.

Applying the formula:

\[ \text{Rent chargeable to P\&L} = \text{Rent paid} + \text{Opening prepaid} - \text{Closing prepaid} \]

\[ = \text{₦}3{,}200 + \text{₦}600 - \text{₦}400 = \text{₦}3{,}400 \]

The rent chargeable to the profit and loss account for 2014 is therefore \(\text{₦}3{,}400\).

A common mistake is to reverse the adjustments, subtracting the opening prepaid and adding the closing prepaid, which would give \(\text{₦}3{,}200 - \text{₦}600 + \text{₦}400 = \text{₦}3{,}000\). Another error is to ignore the opening prepaid entirely and subtract only the closing prepaid, yielding \(\text{₦}3{,}200 - \text{₦}400 = \text{₦}2{,}800\). Both results understate the true expense for the year.

When adjusting for prepayments, remember: opening prepaid is a benefit consumed this year (add it), while closing prepaid is a benefit to be consumed next year (subtract it).

Detalles de la respuesta

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.

Detalles de la respuesta

A suspense account is a temporary account opened when the total debits and total credits in a trial balance do not agree, and the exact cause of the difference cannot be found immediately. The difference between the two totals is placed in the suspense account so that the trial balance balances, allowing the accountant to proceed with preparing draft final accounts while the underlying error is investigated further.

Once the error (or errors) causing the imbalance is located and corrected through the appropriate journal entries, the suspense account is cleared to zero and closed. It therefore exists purely as a temporary holding place to make the trial balance agree, not as a permanent record of sales, purchases, or a substitute for the balance sheet.

Recording sales and recording purchases are handled by the sales and purchases accounts respectively, using entries generated by actual trading transactions, and preparing the balance sheet is a separate step of summarising ledger balances once they are all correct; none of these is the function of a suspense account.

Whenever a trial balance fails to balance and the error cannot be traced immediately, opening a suspense account for the difference, then investigating and correcting the error afterward, is the standard procedure to remember.

Detalles de la respuesta

A capital receipt is money that comes into a business from a source other than its normal day-to-day trading activities, typically from selling or disposing of long-term (fixed) assets, or from raising long-term finance such as loans or additional capital.

Selling a motor vehicle that the business owns and uses (a fixed asset) generates a capital receipt, because the vehicle is not an item held for resale in the ordinary course of business; the receipt arises from disposing of a long-term asset, not from trading.

By contrast, money collected from trade debtors, receipts from selling stock in trade, and receipts from trading activities generally are all revenue receipts: they arise from the business's normal, recurring trading operations of buying and selling goods, and they are the kind of receipts that appear in the Trading and Profit and Loss Account.

To tell capital and revenue receipts apart quickly, ask whether the receipt arose from an asset the business uses to run the business (capital) or from goods and services the business sells as part of its trade (revenue).

Detalles de la respuesta

Prime cost is made up of direct materials, direct labour, and direct expenses, that is, costs that can be traced directly to specific units of output. A royalty paid to the owner of a patent, design, or process, calculated per unit produced or sold, is a direct expense, because it is incurred specifically because those units were made, and it can be traced to them.

Factory rent, depreciation, and factory electricity, by contrast, are all factory (production) overheads. They are costs of running the factory as a whole rather than costs that can be attributed to any one unit of product; a factory still incurs rent, depreciation, and electricity costs even during periods when production output changes, so they cannot be traced directly to individual units in the way a royalty can.

The test to apply is whether a cost is incurred directly because of, and in proportion to, the units actually produced. Royalty payments pass this test; rent, depreciation, and electricity do not.

When prime cost components are being tested, look for costs described as "direct" or paid per unit of output, since these signal prime cost items rather than overheads.

Detalles de la respuesta

The Debtors (Sales Ledger) Control Account is credited with everything that genuinely reduces the total amount customers owe, based on entries actually posted from the books of original entry during the period. Cash and cheques received from debtors, discounts allowed to them, returns inward, bad debts written off, and bills receivable accepted from debtors in settlement of their accounts are all credit entries, because each one represents debt that has actually been cleared, written off, or converted into another form.

A provision for bad debts is fundamentally different from these items. It is an estimate set aside for debts that might become uncollectible in the future; it is not a transaction that has actually happened to reduce any specific customer's outstanding balance. Because the control account only reflects real transactions that affect the total of individual debtor balances in the sales ledger, a general provision, which is an accounting estimate rather than a posted transaction against any particular debtor, is never entered in it at all. It is instead recorded only in the general (nominal) ledger and shown as a deduction from debtors in the balance sheet.

Examination reminder: a control account total must always be traceable back to real, individually posted transactions in the subsidiary ledger; provisions and estimates, which are not tied to specific customer transactions, never appear in it.

Detalles de la respuesta

When an owner takes goods, cash, or other business assets for personal or family use, this is treated as drawings, not as any of the alternative transactions listed.

Drawings reduce the owner's capital in the business, because the resources withdrawn are no longer available to the business even though the owner has not paid for them. The double-entry effect is to debit the Drawings account and credit the Purchases (or Stock) account for the cost value of the goods taken, and at the end of the period the drawings balance is deducted from capital in the capital account.

This differs from a loan, which would require the business to record a formal borrowing arrangement with an external party; it differs from stock, because stock refers to unsold goods still held for resale; and it differs from sales, because no sale has taken place, since the owner has not paid for the materials and no revenue has been earned on them.

Whenever an owner removes goods or cash from the business for private use, always record it as drawings so that the capital account, and ultimately the balance sheet, reflects the true amount the owner still has invested in the business.

Detalles de la respuesta

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.

Detalles de la respuesta

This question requires converting a Receipts and Payments Account (which records all cash received and paid during the year, regardless of the period they relate to) into an Income and Expenditure Account (which recognises only income earned and expenses incurred for the current accounting period, 2018).

The critical adjustment here involves subscriptions. The Receipts and Payments Account includes all subscriptions received in cash during 2018, but some of those subscriptions relate to other years:

• Subscriptions received for 2017: #180,000 (an arrear collected in 2018, but it is 2017 income, not 2018)
• Subscriptions received for 2019: #150,000 (an advance collected in 2018, but it is 2019 income, not 2018)

To determine subscriptions income for 2018, subtract both amounts from the total subscriptions shown in the Receipts and Payments Account:

\[ \text{Subscriptions for 2018} = \text{Total subscriptions received} - \#180{,}000 - \#150{,}000 \]

Next, to compute the surplus (excess of income over expenditure) for 2018:

1. Take the adjusted subscription figure for 2018 and add any other revenue income items shown on the receipts side of the account (such as donations, hall rentals, or interest received). Exclude the opening cash balance, since that is an asset, not income.
2. Total all revenue expenditure items shown on the payments side (such as rent, salaries, printing, utilities, refreshments, and other running costs). Exclude the closing cash balance, since that is also an asset, not an expense.
3. Surplus = Total income for 2018 minus Total expenditure for 2018.

Applying this method to the figures in the Receipts and Payments Account:

\[ \text{Surplus} = \text{Total adjusted income for 2018} - \text{Total expenditure for 2018} = \#5{,}235{,}000 \]

The surplus for the year 2018 is therefore #5,235,000.

A common error is to forget the subscription adjustment and simply take the difference between the receipts side total and the payments side total. That approach is wrong because the Receipts and Payments Account always balances (receipts total equals payments total when opening and closing balances are included), and it mixes capital and revenue items. Only an Income and Expenditure Account, with proper period adjustments, reveals the true surplus or deficit.

Detalles de la respuesta

Capital is what the owner of a sole-trader business has invested in it, and it changes only when transactions directly affect the owner's stake, principally through profits earned, losses incurred, additional capital introduced, or drawings taken out for personal use.

Drawings occur when the owner withdraws cash, goods, or other assets from the business for personal purposes. Paying for something by cheque drawn from the business bank account for the owner's own use reduces what the business owns without the owner supplying anything in return, so it directly reduces the capital account.

The other transactions do not change capital at all: buying equipment by cheque, or buying goods by cheque, simply exchanges one business asset (cash at bank) for another (equipment or stock), leaving total assets, and therefore capital, unchanged. Paying wages by cash is a business expense, which affects net profit for the period and only impacts capital indirectly once that period's profit or loss is eventually transferred to the capital account at year end; it is not the direct, immediate capital movement that drawings represents.

Examination reminder: capital only moves directly when the owner puts something in or takes something out; ordinary asset-for-asset exchanges within the business leave it untouched.

Detalles de la respuesta

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:

Under the imprest system, the amount reimbursed at the end of the period is always exactly equal to the total spent during that period, because reimbursement restores the float back up to the fixed imprest amount. Adding all the payments made during the month gives:

This total, \( \text{#}3{,}728 \), is the amount that must be reimbursed at the end of the month, since it is precisely what has been drawn down from the \( \text{#}4{,}000 \) float. Reimbursing this figure brings the imprest back to \( \text{#}4{,}000 \) ready for the following month.

Examination reminder: in an imprest system, always sum every payment made during the period; that total, not the opening balance or the earlier mid-month top-up, is what gets reimbursed at period end.

Detalles de la respuesta

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.

Detalles de la respuesta

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.

Detalles de la respuesta

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.

Detalles de la respuesta

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.

Detalles de la respuesta

Several public-finance terms describe how money is planned, released, or held for government or organisational spending, and it is important to distinguish them from one another.

A budget is a financial plan of action, expressed in monetary terms, that sets out expected income and planned expenditure for a future period, usually a financial year. It is the master document from which spending authority is derived. A warrant is an authorisation, issued after the budget is approved, permitting a specific amount to actually be spent or withdrawn from public funds; it releases money rather than planning it. The consolidated fund is the main account into which government revenues are paid and from which authorised expenditure is drawn, it is a fund, not a plan. Imprest is a fixed sum of cash advanced to an officer for minor, day-to-day expenses, to be accounted for and replenished periodically; it is a method of controlling petty spending, not a plan expressed for the whole organisation.

Because it is the document that sets out a plan of action in monetary terms before any spending happens, the correct description is a budget.

Examination tip: a budget plans spending in advance, while a warrant authorises money to actually be released against that plan; do not confuse the planning stage with the release stage.

Detalles de la respuesta

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.

Detalles de la respuesta

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.