JAMB UTME - Principles of Accounts - 2025

Détails de la réponse

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.

Détails de la réponse

A trial balance lists the closing debit and credit balances of every account, and it will balance (agree) as long as total debits equal total credits. Some errors disturb this equality; others do not, because they still leave debits and credits equal even though the accounting records are wrong in another sense.

A wrong addition (casting error) in the sales account changes only that account's total without a matching, offsetting change elsewhere, so total debits and total credits no longer match; this is the type of error that is caught by the trial balance.

The other errors listed are all errors that leave the trial balance balanced: posting the purchase of a van to the purchases account debits the correct amount to a debit-side account, so the totals still agree even though it is really a fixed asset, not a purchase for resale (an error of principle); failing to enter sales in the books at all omits both the debit and credit sides equally (an error of omission), so the totals still match; and crediting a purchase to the wrong personal account (A. Tambi's instead of F. Tambi's) still uses the correct amount and side, just the wrong person's account (an error of commission), so total debits and credits remain equal.

The key distinction to remember: errors that affect only one side of the double entry, such as a wrong addition, break the trial balance's agreement, while errors of omission, principle, and commission typically do not, because both the debit and credit sides are still affected by the same, correct amount.

Détails de la réponse

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.

Détails de la réponse

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.

Détails de la réponse

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.

Détails de la réponse

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.

Détails de la réponse

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).

Détails de la réponse

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.

Détails de la réponse

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.

Détails de la réponse

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.

Détails de la réponse

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 (also called carrying amount) of a fixed asset is its cost less the depreciation accumulated up to the date of disposal:

This is the figure that would have appeared in the asset account (or the balance sheet) immediately before the sale was recorded. It is distinct from the sale proceeds of \( \text{#}16{,}000 \), and from the resulting loss on disposal of \( \text{#}17{,}000 \), which is simply the difference between the net book value and the proceeds.

Examination reminder: net book value depends only on cost and accumulated depreciation up to the disposal date; it has nothing to do with what the asset is eventually sold for.

Détails de la réponse

The double-entry system consists of ledger accounts to which transactions are posted using matching debit and credit entries, and these accounts are eventually closed off (balanced) at the end of a period. The Trading Account, Profit and Loss Account, and Appropriation Account are all genuine ledger accounts within this system: each receives closing entries transferred by double entry from other accounts, and each is itself balanced off.

The Balance Sheet, however, is not an account at all. It is a statement, a list of the balances remaining on the asset, liability, and capital accounts after the trading, profit and loss, and appropriation accounts have been closed off. No transactions are posted to or from the Balance Sheet using debit and credit entries; it simply displays balances that already exist in the ledger. For this reason, it is not part of the double-entry system in the way the other three accounts are.

A useful check: if a document receives its own double-entry postings and is itself balanced off within the ledger, it is part of the double-entry system; if it merely summarises balances already recorded elsewhere, as the Balance Sheet does, it sits outside that system.

Remember this distinction when a question separates "accounts" from "statements": Trading, Profit and Loss, and Appropriation Accounts are accounts; the Balance Sheet is a statement of balances.

Détails de la réponse

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.

Détails de la réponse

A source document is the original piece of paper or electronic record that provides evidence that a transaction has taken place and supplies the details (date, amount, parties involved) needed to make an entry in the books of account. Examples used in bookkeeping include invoices, credit notes, debit notes, receipts, cheques, and petty cash vouchers.

An invoice is issued when goods or services are sold on credit and shows what is owed. A credit note is issued to reduce an amount owed, typically when goods are returned by a customer. A debit note is issued to increase an amount owed or to request that a supplier's invoice be corrected. Each of these is created specifically to record and support a business transaction, so each qualifies as a source document.

A bank note, however, is simply a unit of currency, a piece of paper money used as a medium of exchange. It does not record the details of a transaction and is not raised to provide evidence for a bookkeeping entry, so it cannot be classified alongside invoices, credit notes, and debit notes as a source document.

Examination tip: when a question lists "source documents," check whether the item records transaction details (who, what, how much) or is simply a form of money; only the former qualifies.

Détails de la réponse

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.

Détails de la réponse

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.

Détails de la réponse

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.

Détails de la réponse

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.

Détails de la réponse

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).

Détails de la réponse

When apportioning expenses between departments, the basis chosen should reflect what actually drives that particular cost in each department. Discounts received from suppliers are earned in proportion to how much a department buys from those suppliers, since suppliers typically grant discounts based on the volume or value of purchases made.

For this reason, discounts received are apportioned between departments in proportion to each department's purchases: a department that buys more is the one that is generating more of the supplier discount, so it should be credited with a correspondingly larger share.

By contrast, carriage outwards and selling commission are better apportioned on the basis of sales, since both are costs connected with getting goods to customers and rewarding sales effort, which relate to how much each department sells rather than how much it buys. Bad debts are also more naturally linked to sales, since they arise from customers who bought on credit and failed to pay, so bad debts are usually apportioned in proportion to credit sales rather than purchases.

The general rule to apply: match the apportionment basis to the activity that actually generates the expense or income being shared, purchases for discounts received, and sales for carriage outwards, selling commission, and bad debts.

Détails de la réponse

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.

Détails de la réponse

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).

Détails de la réponse

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".

Détails de la réponse

In government (public sector) accounting, spending from the treasury cannot begin until the relevant authority has been formally granted. The appropriation bill, once passed, becomes the Appropriation Act, which provides the main legal authority for government ministries and departments to spend money on approved programmes for the year.

Because the legislative process of passing the appropriation bill can take time, government business often needs to continue before it is finally approved. A provisional general warrant is the instrument used to authorise limited, temporary spending during this gap, so that essential government activities are not brought to a halt while the bill is still going through the legislature. Once the appropriation bill is passed, it is superseded by the substantive authority to spend under the Act.

The other warrants operate at different stages: a supplementary general warrant authorises additional spending after the main budget has already been approved and found insufficient; a warrant transfer permits moving an already-approved allocation from one budget head to another; and a reserved expenditure warrant relates to spending set aside for specific reserved purposes. None of these apply before the appropriation bill itself has been approved.

Examination reminder: the word "provisional" is the key clue; it signals temporary authority granted in advance of the appropriation bill's approval, distinguishing it from the other warrants, which all assume the main budget is already in force.

Détails de la réponse

When goods are transferred internally from one department of a business to another, the transaction is recorded in the departmental accounts using ordinary double-entry logic, treating the transfer rather like an internal sale from one department to the other.

The department that gives up the goods has, in effect, "sold" them internally, so its account is credited with the value of the goods transferred, reducing what that department is holding. The department that now has the goods has, in effect, "bought" them internally, so its account is debited with the same value, increasing what that department is holding. This keeps each department's trading account showing the correct cost of goods actually available for it to sell to customers.

Recording the transfer the other way round, debiting the giving department and crediting the receiving department, would overstate the cost of goods handled by the department that gave the goods away and understate the cost for the department that actually received them, distorting each department's individually calculated gross profit.

Whenever goods move between departments, treat it like a mini sale: debit the department receiving the goods and credit the department giving them up.

Détails de la réponse

Balance Brought Down = Opening Balance + Income(Expenses + Drawings)

Balance Brought Down = (D 200,000 + D 180, 000 + D 98, 000) - (D 40,000 + D 73, 000 + D 28,600 + D 12, 800)

 = D 478, 000 - D 154, 8000 = D 323, 200

Détails de la réponse

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.

Détails de la réponse

The Chief Accounting Officer of the federation is the Accountant General. This officer is the senior public accountant responsible for the overall custody, control, and stewardship of the federation's public funds, and for ensuring that accounting records and financial statements of the government are properly maintained and reported.

The Accountant General's duties include maintaining the central accounting records of government receipts and payments, preparing the consolidated financial statements of the federation, advising on accounting policy and procedures across ministries and departments, and ensuring that public funds are accounted for accurately and in line with financial regulations.

This role is distinct from the Auditor General, whose function is to independently examine and audit government accounts after they have been prepared, rather than to prepare or take custody of them; it is also distinct from the Minister of Finance, who is a political office holder responsible for fiscal policy rather than the technical maintenance of accounting records; and it is distinct from a general "Chief Accountant" title, which is not the specific constitutional or statutory office referred to here.

When a question asks who is responsible for the accounting records of the whole federation, as opposed to who audits them or who sets fiscal policy, the answer being tested is the Accountant General.

Détails de la réponse

A suspense account is a temporary holding account opened specifically when the trial balance fails to balance, that is, when total debits do not equal total credits after all known entries have been posted. The difference between the two totals is placed in the suspense account so that the trial balance can be made to balance provisionally while the underlying cause is investigated, and the suspense account is then cleared once the actual errors are found and corrected through the normal double entry.

Not every bookkeeping error causes this kind of imbalance. Errors such as an error of omission (a transaction left out completely), an error of principle (posted to the wrong class of account, for example treating a capital item as an expense), a compensating error, or an error of original entry (the same wrong figure posted correctly to both debit and credit) still leave total debits equal to total credits. These errors affect the accuracy of the accounts, and may distort the net profit figure, but they do not disturb the trial balance's agreement, so there is no imbalance for a suspense account to hold, and none is needed to correct them.

Examination reminder: the defining test for whether a suspense account is required is simple: does the error make the trial balance fail to balance? If yes, a suspense account is used; if the trial balance still balances despite the error, correction is made by a direct journal entry with no suspense account involved.

Détails de la réponse

The entity concept (also called the business entity concept) treats a business as a distinct accounting unit, completely separate from the personal affairs of its owner or owners, even where the business has no separate legal existence, as with a sole proprietorship.

Under this concept, ownership of the business's assets is recorded as belonging to the business itself, not to the owner personally, and the amount the owner has invested is shown as a liability of the business to the owner, called capital. This is why the owner's personal transactions, unrelated to the business, are kept out of the business's books entirely, while any resources the owner draws out for personal use are recorded as drawings against their capital, not simply ignored as if the assets were always theirs to take freely.

This differs from saying ownership is "not separated" from the business, which would blur personal and business affairs together and defeat the purpose of maintaining separate business accounts in the first place; and it is unrelated to whether management or a board of directors holds ownership, since the entity concept is about separating owner from business, not about identifying who runs the business.

Whenever a question tests the entity concept, look for the idea that the business is accounted for as if it were a person in its own right, distinct from whoever owns or funds it.

Détails de la réponse

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.

Détails de la réponse

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.

Détails de la réponse

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.

Détails de la réponse

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.

Détails de la réponse

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.

Détails de la réponse

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).

Détails de la réponse

A Receipts and Payments Account records every cash inflow and outflow during the year, regardless of which accounting period the transaction belongs to. It also includes the opening and closing cash balances, which are assets, not income or expenses. To prepare an Income and Expenditure Account, only items that are revenue in nature and that relate to the current year are recognised.

On the payments side of the Receipts and Payments Account, two categories of items must be separated:

• Revenue expenditure (day-to-day running costs such as rent, salaries, stationery, printing, postage, refreshments, repairs, utilities, and similar recurring expenses). These are debited to the Income and Expenditure Account.
• Capital expenditure (purchases of fixed assets such as equipment, furniture, or investments) and the closing cash balance. These go to the Balance Sheet, not to the Income and Expenditure Account.

Unlike the income side, the payments side does not require an adjustment for the subscription timing difference. The subscription adjustment (removing the #180,000 received for 2017 arrears and the #150,000 received for 2019 in advance) affects only the income figure in the Income and Expenditure Account, not the expenses.

Adding up all the revenue expenditure items on the payments side of the Receipts and Payments Account gives the total expenses debited to the Income and Expenditure Account for 2018. That total is #8,095,000.

This can be cross-checked against the surplus. The surplus for 2018 from the same data is #5,235,000. Since:

\[ \text{Surplus} = \text{Total Income} - \text{Total Expenses} \]

\[ \text{Total Income} = \#5{,}235{,}000 + \#8{,}095{,}000 = \#13{,}330{,}000 \]

This confirms that the total expenses figure and the surplus are consistent with the underlying data.

A common mistake is to include the closing cash balance or a capital asset purchase as an expense. Neither belongs in the Income and Expenditure Account. Similarly, confusing the subscription adjustment (which reduces income) with an expense adjustment would lead to a wrong answer. Expenses on the payments side are taken at face value because they were all paid in cash during the year and relate to the club's operations for 2018.

Détails de la réponse

The rule that a business should not anticipate profit before it is actually earned is the prudence concept (also called the concept of conservatism). It requires that revenues and profits are recognised only when they are reasonably certain, while potential losses and liabilities are provided for as soon as they are foreseen, even if not yet certain.

Applying prudence prevents a business from overstating its financial position by recording profit on a transaction that has not yet been completed or confirmed, which would mislead anyone relying on the accounts, such as creditors, investors, or tax authorities.

This is different from the going concern concept, which assumes the business will continue operating for the foreseeable future; the consistency concept, which requires the same accounting methods to be used from one period to the next so that results can be compared; and the dual aspect concept, which underpins double-entry bookkeeping by recognising that every transaction has two effects. None of these three concepts is about withholding recognition of unearned profit.

Whenever a question describes caution in recognising gains but full recognition of foreseeable losses, that combination is the hallmark of prudence.

Détails de la réponse

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.

Détails de la réponse

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.