JAMB UTME - Principles of Accounts - 1994

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The term "accounting period" is used to refer to the time span, usually one year, covered by the financial statement. An accounting period is a period of time for which a company prepares its financial statements and reports its financial performance. In general, the accounting period is usually one year, but it can be any period of time that the company chooses. During the accounting period, a company records all of its financial transactions and keeps track of its income, expenses, assets, and liabilities. At the end of the accounting period, the company prepares its financial statements, which include the income statement, balance sheet, and cash flow statement. The financial statements provide a summary of the company's financial performance for the accounting period, showing its revenues, expenses, net income, assets, and liabilities. They provide important information for investors, creditors, and other stakeholders to make informed decisions about the company's financial health and prospects. Therefore, the correct answer is the time span, usually one year, covered by the financial statement.

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The book-keeping error committed by Mallam Gambo is an error of principle. This is because he has debited the wrong account, i.e., office expenses account, instead of the correct account, which is the freezer account. This error violates the basic accounting principle of "matching," which requires that expenses should be matched with the revenues they generate. The purchase of the freezer is a capital expenditure and should be recorded as an asset in the balance sheet, not as an expense in the profit and loss statement. The correct entry should have been to debit the freezer account and credit the bank account.

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The amount of individual items on a government budget is called a vote. - In government budgeting, a vote refers to the amount of money allocated for a specific item or expenditure in the budget. - Each item in the budget is usually given a separate vote, which represents the total amount of money allocated for that particular item. - For example, if a government allocates a certain amount of money for education, that amount will be given a separate vote, and it will represent the total amount of money allocated for education in the budget. - The votes in a government budget are usually presented in a tabular form, with each vote itemized and its corresponding amount specified. - Therefore, in government budgeting, a vote refers to the amount of money allocated for a specific item or expenditure in the budget.

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Factory workers' salary will be classified as direct labour cost. - Direct labour cost refers to the cost of labour that can be directly attributed to the production of goods or services. It is the cost of labour that is involved in the manufacturing process, and it can be easily traced to the cost of production. - In the case of a factory, the salary of the factory workers can be directly attributed to the production process because they are the ones directly involved in the manufacturing of goods. Therefore, the factory workers' salary is a direct labour cost. - On the other hand, the accountant's salary, managing director's salary, and cashier's salary are indirect labour costs because they cannot be directly traced to the cost of production. They are salaries for staff who are not directly involved in the manufacturing process, but who perform functions that support the production process such as bookkeeping, management, and administrative duties. - In summary, direct labour cost is the cost of labour that is involved in the manufacturing process and can be directly attributed to the cost of production.

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If a bad debt previously written off is subsequently repaid, the amount collected is recorded as an income in the profit and loss account. This is because the bad debt written off was already recognized as an expense in the profit and loss account in the past, so when the debt is repaid, it is treated as a recovery of that expense and recorded as income. The amount collected is not recorded as an expense in the balance sheet, as the balance sheet only shows the financial position of a company at a specific point in time, and the collection of a bad debt is not an expense, but rather a source of income.

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The net profit from a trading account of a non-profit making organization would be treated as income in the income and expenditure account. The income and expenditure account is a financial statement that shows the income earned and expenses incurred by a non-profit organization during a particular accounting period, usually one year. This statement is similar to the profit and loss account used by for-profit organizations. When a non-profit organization earns income from trading activities, such as selling goods or services, any resulting net profit would be treated as income in the income and expenditure account. This is because the purpose of a non-profit organization is not to make a profit for its owners or shareholders, but to achieve its charitable or social objectives. The income and expenditure account shows the surplus or deficit of the organization for the accounting period, and it is used to determine whether the organization has achieved its charitable or social objectives within its financial means. Any surplus can be used to fund future activities or to strengthen the organization's financial position. Therefore, the correct answer is income and expenditure account.

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When a business incurs labor cost in installing a fixed asset, the cost is treated as installation cost of the asset. Fixed assets are long-term tangible assets that a business uses to generate income, such as land, buildings, equipment, and machinery. When a business purchases a fixed asset, the cost of acquiring and installing the asset is capitalized, which means it is recorded as a cost of the asset and is not immediately expensed. If labor costs are incurred during the installation of a fixed asset, such as when setting up a new machine, these costs are also considered part of the installation cost of the asset. The labor costs associated with installing a fixed asset are included in the total cost of the asset and are depreciated over the asset's useful life. Therefore, when a business incurs labor cost in installing a fixed asset, the cost is treated as installation cost of the asset. It is added to the purchase price of the asset to determine the total cost of the asset, and is subsequently depreciated over the useful life of the asset.

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The nominal value of each share is N0.50. - Nominal value or face value of a share refers to the stated value of each share as specified in the Memorandum of Association of a company. It is also called par value or legal value. - In this case, the authorized share capital of the limited liability company is N50 million, split into 100 million shares. This means that the nominal value of each share would be N50 million divided by 100 million shares, which is N0.50. - The company has offered 80 million shares for subscription at 60k per share, payable in full on application. This means that investors have to pay N0.60 per share to subscribe for the shares, but the nominal value of each share is N0.50. - The amount paid by investors that is above the nominal value of each share is called the share premium, and it is recorded in the company's financial statements as part of the shareholders' equity. - Therefore, in this case, the nominal value of each share is N0.50.

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To calculate the cost of goods sold, we need to start with the formula: Cost of Goods Sold = Opening Stock + Purchases + Carriage inwards - Closing Stock - The Opening stock is given as ₦10,000 - The Purchases is given as ₦20,000 - The Carriage inwards is given as ₦5,000 - The Closing stock is given as ₦5,000 Substituting these values into the formula, we get: Cost of Goods Sold = 10,000 + 20,000 + 5,000 - 5,000 Cost of Goods Sold = ₦30,000 Therefore, the cost of goods sold is ₦30,000. Explanation: - Cost of Goods Sold refers to the cost of the products sold during a particular accounting period. - To calculate it, we add the cost of the goods purchased to the cost of any additional expenses related to the purchase such as carriage inwards and then subtract the cost of any goods that are still in stock (i.e. the closing stock). - In this case, the opening stock was ₦10,000, and the purchases were ₦20,000. The carriage inwards, which is an additional expense related to the purchase, was ₦5,000. - The closing stock was ₦5,000, which means that ₦5,000 worth of goods were still in stock at the end of the accounting period. - By substituting these values into the formula, we get the cost of goods sold which is ₦30,000.

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In bookkeeping, a suspense account is used to temporarily hold transactions that cannot be immediately identified or corrected. It is a general ledger account that serves as a "holding area" for transactions that need further investigation before being allocated to their proper accounts. The suspense account is typically used to correct bookkeeping errors when the item involved is unknown or the error does not affect the agreement of the trial balance. For example, if an amount is recorded incorrectly or a transaction is mistakenly entered twice, the error may not be immediately apparent. Instead of leaving the error unresolved, the transaction can be posted to the suspense account until the error is identified and corrected. Once the error is found and corrected, the transaction can be reclassified to the appropriate account in the general ledger. Therefore, the correct answer is: "item involved is unknown" and "error does not affect the agreement of the trial balance."

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The net profit or loss for the year is determined in the profit and loss account after eliminating all expenses from gross profit and adding any other income. The profit and loss account, also known as the income statement, is a financial statement that shows a company's revenues, expenses, and net profit or loss over a specific period, typically a year. It starts with the gross profit, which is the difference between the sales revenue and the cost of goods sold. After calculating the gross profit, all other expenses related to the company's operations are deducted from it, including administrative expenses, selling expenses, depreciation, and interest expenses. This gives us the operating profit, which is the profit earned from the company's core operations. Next, any non-operating income, such as interest earned on investments, is added to the operating profit. Non-operating expenses, such as interest paid on loans, are deducted from the operating profit. Finally, any taxes due are deducted from the total income, and the resulting figure is the net profit or loss for the year. Therefore, the net profit or loss for the year is determined in the profit and loss account after eliminating all expenses from gross profit and adding any other income.

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Discounts in a three column cashbook are not balanced off but periodically transferred to the discount account because discounts do not form part of double entry. This means that discounts are not accounted for in the cashbook as cash items only, but rather as a reduction in the amount owed to the creditor. To ensure that the discounts are properly recorded in the ledger, they need to be periodically transferred to the discount account. This allows for accurate tracking and reporting of the discounts, which is important for financial management and analysis purposes.

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The accounting convention being referred to is conservatism. Conservatism is the principle of being cautious in the recognition of profits and assets and the overstatement of liabilities and losses. It means that accounting should err on the side of caution when there is uncertainty or ambiguity in the measurement of financial data. Under conservatism, all potential losses should be recognized in a timely manner, while potential profits should only be recognized when they are realized. This means that if there is a possibility that a company will experience a loss, they should make adequate provisions for it, even if the loss has not yet been realized. On the other hand, potential profits should only be recognized when there is certainty that they will be realized. This principle helps ensure that financial statements provide a realistic view of a company's financial position and performance. It also helps to prevent companies from overstating their profits and understating their losses, which could mislead investors and other stakeholders.

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When shares issued are paid for, the accounting entry required is to debit bank or cash account and credit share capital and/or premium account. When a company issues shares, it receives money from the shareholders in exchange for a portion of ownership in the company. This money is recorded in the company's bank account or cash account. The accounting entry for this transaction involves a debit to the bank or cash account, which increases the company's assets, and a credit to the share capital and/or premium account, which increases the company's equity. Share capital refers to the nominal value of the shares issued, while premium account refers to the amount received in excess of the nominal value of the shares. For example, if a company issues 1,000 shares at a nominal value of $1 per share, and sells them for $5 per share, the total amount received would be $5,000. The accounting entry would be a debit of $5,000 to the bank or cash account, and a credit of $1,000 to the share capital account and a credit of $4,000 to the share premium account. Therefore, the correct answer is to debit bank or cash account and credit share capital and/or premium account.

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The financial position of an organization at a particular time can be ascertained from the balance sheet. A balance sheet is a financial statement that shows the company's assets, liabilities, and equity at a specific point in time. It provides a snapshot of the company's financial position, including what it owns, what it owes, and what is left over for the owners. The balance sheet is divided into two main sections - the assets section and the liabilities and equity section. The assets section lists all the things that the company owns, such as cash, investments, property, and equipment. The liabilities and equity section lists all the things that the company owes, such as loans, accounts payable, and taxes, as well as the owner's equity in the company. By looking at the balance sheet, you can determine the company's liquidity, solvency, and financial stability. For example, you can see how much cash the company has on hand, how much it owes to creditors, and how much it has invested in fixed assets. The balance sheet helps you to understand the company's financial health, and it is a key document used by investors, creditors, and analysts to make informed decisions about the company. Therefore, the correct answer is the balance sheet.

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The assigning of revenues to the accounting period in which goods were sold or services were rendered and expenses were incurred is known as the matching concept. This concept states that in order to properly determine the net income for a given accounting period, all related revenues and expenses must be matched and recorded together. This ensures that the financial statements accurately reflect the true financial position of the company during that period.

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The cash basis of accounting requires the recognition of revenue only when they are received. This means that revenue is recorded only when cash is received from customers, regardless of when the goods or services were sold. This method is often used by small businesses or individuals, as it is simpler to record transactions when cash is physically received. However, it may not give an accurate picture of the company's financial performance, as revenue earned but not yet received is not recorded.

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The use of the folio in the ledger is for referencing purposes. When a transaction is recorded in the ledger, the folio is used to indicate the page number where the corresponding entry can be found in the journal or other books of original entry. This helps to easily locate and verify the transaction when needed. Therefore, the folio is not used to indicate the particulars of the transaction, the account titles or only credit items, but rather to cross-reference transactions between different books of accounts.

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The document that sets out the regulations regarding shares, meetings, and internal organization of a company is known as the "Articles of Association". It is a legal document that lays out the rules governing the internal management and day-to-day operations of the company. The Articles of Association define the rights and obligations of the company's shareholders, directors, and officers, as well as the procedures for decision-making, appointment of officers, and other important matters. It is one of the two key documents required to register a company in most jurisdictions, the other being the Memorandum of Association.

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The final accounts of a business entity are prepared at the end of the accounting period to show the financial position and performance of the business. The major distinguishing element between the final accounts of a partnership and a sole trader is the appropriation account. An appropriation account is a statement that shows how the profits or losses of a business are allocated among the owners. In a partnership, the profits and losses are divided among the partners according to their agreement, while in a sole trader business, the profits and losses belong solely to the owner. In a sole trader's final accounts, the appropriation account will show the amount of profit or loss that is retained by the owner and the amount that is withdrawn from the business as drawings. However, in the final accounts of a partnership, the appropriation account will show how the profits or losses are divided among the partners, including any salary or interest paid to them, and the amount that is retained in the business as a reserve. Therefore, the correct answer is: "appropriation account."

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The expenditure on a good or service which is consumed either immediately or within a current accounting period is called "Recurrent expenditure". Recurrent expenditure is a type of expenditure that is recurring in nature and is incurred on a regular basis to maintain the normal day-to-day operations of a business or organization. Examples of recurrent expenditure include salaries and wages, rent, utilities, and office supplies. Unlike capital expenditure, which is incurred on long-term assets such as buildings or equipment, recurrent expenditure is not meant to generate future income or benefits beyond the current accounting period.

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When preparing a bank reconciliation statement, the amount deducted from the balance per bank statement is the total of the unpresented cheques. Unpresented cheques are those cheques that have been issued by the company but have not yet been presented to the bank for payment. Since these cheques have not been paid yet, they do not appear on the bank statement, which means that the balance per bank statement is higher than the actual balance of the company's bank account. To reconcile the difference between the bank statement and the actual balance of the company's bank account, the total of the unpresented cheques is deducted from the balance per bank statement. This adjustment ensures that the reconciled bank balance reflects the true balance of the company's bank account, taking into account all transactions that have occurred up to the date of the bank reconciliation statement. Therefore, the correct answer is unpresented cheques.

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Investors and creditors of a company use accounting information to predict the future cash flows of the company. By analyzing financial statements such as the balance sheet, income statement, and statement of cash flows, they can gain insights into a company's financial health, profitability, liquidity, and ability to generate cash in the future. This information can be used to make investment and lending decisions, as well as to evaluate a company's overall performance and potential for growth.