WAEC SSCE - Financial Accounting - 2021

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When a sole proprietor earns a net profit, this profit belongs to the owner of the business. The profit can be used in different ways, depending on the owner's decision. One option is to transfer the net profit to the capital account. This means that the owner is increasing their investment in the business, which can help the business grow in the future. Another option is to withdraw the profit by transferring it to the drawings account. This means that the owner is taking the profit out of the business for personal use. If the owner decides to keep the profit in the business, it can be transferred to the profit and loss appropriation account. This account is used to distribute the profit to different purposes, such as paying dividends to shareholders, setting aside funds for future investments or retaining the profit in the business. Lastly, the profit and loss account is a record of the business's revenue and expenses, including the net profit at the end of the period. It is not a transfer account and the net profit is not transferred to this account.

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Fixed assets are long-term assets that a company owns and uses to generate revenue over several years. These assets, such as buildings, machinery, and equipment, are not meant for resale but rather are essential for a company's operations. To keep track of these fixed assets, companies maintain a separate account for each asset in the general ledger. The general ledger is the primary ledger that contains all the financial transactions of a company. Each fixed asset account in the general ledger tracks the original cost of the asset, any subsequent improvements or upgrades made to the asset, and the accumulated depreciation (i.e., decrease in value) over time. Therefore, the correct answer is the general ledger. The other options, such as the purchases ledger, sales ledger, and private ledger, are not used to record fixed assets. The purchases ledger tracks purchases made on credit, the sales ledger tracks sales made on credit, and the private ledger is a subsidiary ledger that contains more detailed information about certain accounts in the general ledger.

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When the sales account is corrected, the gross profit and the net profit would increase by GH¢1,000. Gross profit is the amount a company earns after subtracting the cost of goods sold from its revenue. If the sales account was undercast by GH¢1,000, this means that the company's revenue was recorded as lower than it actually was. By correcting this, the company's revenue would be higher and its gross profit would increase by the same amount, GH¢1,000. Net profit is the amount a company earns after subtracting all its expenses from its gross profit. If the company's gross profit increases by GH¢1,000, this means that its net profit would also increase by the same amount, GH¢1,000, assuming all other expenses remain the same. In short, correcting the sales account would result in both the gross profit and the net profit increasing by GH¢1,000.

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In the preparation of financial statements, minor events that have no significant impact on the financial position or performance of a company can be ignored in line with the materiality concept. The materiality concept states that information is considered material if it would affect the decisions of an informed reader of the financial statements. In other words, information is considered material if it is important enough to impact the overall understanding of the financial statements. Therefore, if an event is considered minor and unlikely to affect the financial statements in a significant way, it may not be disclosed in the financial statements. This helps to simplify the financial statements and focus on the information that is most relevant and important to users.

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Wages accrued is shown in the balance sheet as a liability. A liability is an amount that a company owes to someone else, such as employees for work that has been done but not yet paid for. Wages accrued is the amount of money that a company owes to its employees for the work they have done, but the payment has not yet been made. This means that the company has an obligation to pay the employees in the future, and this obligation is considered a liability on the balance sheet. In simple terms, the balance sheet is a snapshot of a company's financial position at a given point in time, and it lists all the assets, liabilities, and equity that the company has. Wages accrued is listed as a liability because it represents money that the company owes to others.

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The balance of rent in the balance sheet would be a current liability of GH¢12,000. A balance sheet is a financial statement that provides a snapshot of a company's financial position at a specific point in time. It lists the company's assets, liabilities, and equity. In this case, the monthly rent payable is GH¢3,000. The rent paid on 01/01/2018 is GH¢48,000, which is more than the monthly rent for a whole year (12 x GH¢3,000 = GH¢36,000). This means that the company has a surplus of GH¢12,000 (GH¢48,000 - GH¢36,000). Since the company has not yet used the GH¢12,000 to pay for its rent, it is considered a liability, or an obligation to pay in the future. In accounting, a liability is recorded as a current liability if it is expected to be paid within one year. Therefore, the balance of rent in the balance sheet would be a current liability of GH¢12,000.

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In a partnership, the partners' share of profit is credited to their capital account. The capital account is a record of each partner's investment in the partnership and any changes to that investment over time. When the partnership earns a profit, the profit is divided among the partners according to their agreed-upon profit sharing ratio, and the partners' share of profit is credited to their individual capital accounts. This increases their capital investment in the partnership, and helps to ensure that the partners are fairly compensated for their contributions to the success of the business.

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Attama's share of profit can be calculated using the following steps: Step 1: Determine the total profit to be shared between Attama and Wawa. The total profit is given as D34,000. Step 2: Calculate Attama's salary for the year. Attama's salary for the year is D13,000. Step 3: Determine the remaining profit to be shared between Attama and Wawa. The remaining profit is obtained by subtracting Attama's salary from the total profit: D34,000 - D13,000 = D21,000. Step 4: Determine the share of profit for Attama and Wawa using the profit-sharing ratio of 4:3. To do this, we first calculate the total of the profit-sharing ratio: 4 + 3 = 7 Then, we determine Attama's share of the profit: Attama's share = (4/7) x D21,000 = D12,000 Therefore, Attama's share of the profit is D12,000. Answer: D12,000

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To calculate the depreciation for the year 2019, we need to know the carrying value of the asset at the beginning of the year, which is the cost of the asset minus accumulated depreciation up to the end of the previous year. Accumulated depreciation for the end of 2018 can be calculated as follows: Depreciation for 2018 = 15% x ₦600,000 = ₦90,000 Accumulated depreciation at the end of 2018 = ₦90,000 Carrying value of the asset at the beginning of 2019 can be calculated as follows: Carrying value at beginning of 2019 = Cost of asset - Accumulated depreciation at the end of 2018 Carrying value at beginning of 2019 = ₦600,000 - ₦90,000 Carrying value at beginning of 2019 = ₦510,000 Using the reducing balance method, the depreciation charge for 2019 can be calculated as 15% of the carrying value at the beginning of the year: Depreciation for 2019 = 15% x ₦510,000 Depreciation for 2019 = ₦76,500 Therefore, the answer is option (D), ₦76,500.

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To find the sale for the year, we need to add the mark-up to the cost of goods sold. The mark-up is 30% of the cost of goods sold, which means we need to add 0.3 times the cost of goods sold to the cost of goods sold itself. So, Sale for the year = Cost of goods sold + Mark-up Sale for the year = Le200,000 + 0.3 x Le200,000 Sale for the year = Le200,000 + Le60,000 Sale for the year = Le260,000 Therefore, the sale for the year is Le260,000.

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The partner who is actively involved in the management of the firm and assumes personal responsibility for the firm's debts is a General Partner. A General Partner has an active role in making decisions, running the day-to-day operations, and has unlimited liability, meaning they are personally responsible for the debts of the firm. On the other hand, a Limited Partner has limited liability, meaning their personal assets are not at risk if the firm cannot pay its debts. A Sleeping Partner is a passive investor who provides capital but does not participate in the management of the firm. A Quasi Partner is a term not commonly used in the business world.

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The reducing balance method of calculating depreciation charges a fixed percentage of the net book value of the asset. Net book value refers to the cost of the asset minus the accumulated depreciation on the asset. Let's say you have an asset worth $100,000 and the fixed percentage used to calculate depreciation is 20%. The first year, the depreciation would be calculated as 20% of the net book value, which would be $100,000. So, the depreciation for the first year would be $20,000. In the next year, the net book value would be $80,000 (which is $100,000 minus $20,000), and the depreciation would be calculated as 20% of the new net book value, which would be $16,000. This process continues, with the depreciation being calculated as a fixed percentage of the decreasing net book value each year, resulting in the depreciation charges reducing over time.

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The accounting principle of double entry states that every financial transaction has two effects: a debit and a credit. In other words, every entry made in the accounting records must have an equal and opposite entry. This means that for every debit made to an account, there must be a corresponding credit made to another account. This helps ensure that the accounting records are accurate and balanced. Therefore, the option that correctly describes the accounting principle of double entry is: "every debit entry must have a corresponding credit entry."

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Depreciation is a method of accounting that allocates the cost of an asset over its useful life, reflecting its gradual decrease in value. The reducing balance method calculates the depreciation charge based on the declining net book value of an asset. For the given scenario, the net book value at the end of the first year (31/12/18) can be calculated as follows: Cost of asset: ₦600,000 Depreciation charge for the first year: ₦600,000 * 15% = ₦90,000 Net book value at 31/12/18: ₦600,000 - ₦90,000 = ₦510,000 Next, we can calculate the net book value at the end of the second year (31/12/19) as follows: Cost of asset: ₦510,000 Depreciation charge for the second year: ₦510,000 * 15% = ₦76,500 Net book value at 31/12/19: ₦510,000 - ₦76,500 = ₦433,500 So, the net book value of the asset at 31/12/19 is ₦433,500.

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The acid test ratio of a firm measures its liquidity. Specifically, it evaluates a company's ability to pay off its short-term debts using its most liquid assets (such as cash, marketable securities, and accounts receivable) without relying on the sale of inventory. In other words, it indicates whether a company has enough readily available resources to cover its immediate financial obligations. A higher acid test ratio suggests that a company is more capable of meeting its short-term liabilities, while a lower ratio indicates a higher risk of default. Therefore, the acid test ratio is an important financial metric for investors and creditors to assess the financial health and stability of a company.

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A suspense account is used in the correction of errors that affect the agreement of a trial balance. A trial balance is a statement that shows the total debits and total credits of all accounts in the general ledger of a business, and it is used to check the accuracy of the accounting records. If the trial balance does not balance, it means that there are errors in the accounting records that need to be corrected. In some cases, it may not be immediately clear where the error has occurred, or it may not be possible to correct the error immediately. In these situations, a suspense account can be used to temporarily hold the difference between the debits and credits until the error can be located and corrected. For example, if the total debits in the trial balance exceed the total credits by $100, a suspense account can be created with a credit balance of $100. This will balance the trial balance in the short term, but it is important to remember that the suspense account is not a permanent solution. The error needs to be located and corrected, and the balance in the suspense account needs to be transferred back to the correct accounts once the error has been resolved. Overall, a suspense account is a useful tool for correcting errors that affect the agreement of a trial balance and for ensuring the accuracy of the accounting records.

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The difference between the market value of goods produced and the cost of production is called the "gross profit on manufacturing." This is the amount of money that a business earns after deducting the cost of production from the revenue generated by selling the goods. It represents the total profit before taking into account any other expenses such as overheads, taxes, or interest payments. In simpler terms, it is the money left over from the sale of goods after the cost of producing those goods has been accounted for.

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A not-for-profit making organization is a type of organization whose main goal is to serve a certain cause or community, rather than to make a profit for its owners or shareholders. Members of this type of organization: - Do not earn dividends on their contributions, as the organization does not aim to make a profit. - Do not receive surplus at the end of the year, as any surplus is usually reinvested in the organization's mission. - May not be paid interest on their contributions, as the focus is on serving the cause, not generating profits. - May share profits according to their contributions, but this is not the primary goal of the organization and profits are not distributed as personal gain.

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The correct entry for goods returned to the supplier is: Supplier's Account; credit Purchases Returns Account. In simple terms, when goods are returned to a supplier, it means that the supplier is taking back the goods that were previously sold to you and credited your account for the same amount. So, in your books, you need to record the credit received from the supplier by decreasing the amount you owe them (Supplier's Account) and increasing the account that keeps track of the returned goods (Purchases Returns Account). This results in a double-entry of Supplier's Account being debited and Purchases Returns Account being credited, effectively keeping the books balanced.

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The money measurement concept states that only transactions that can be expressed in terms of money can be recorded in the financial statements. This means that only transactions that have a monetary value, such as the sale of goods or services, can be recorded. One limitation of this concept is that important non-monetary activities, such as the value of a company's reputation or the quality of its products, cannot be reported in financial statements. This means that important aspects of a company's performance may not be reflected in its financial reports. This can lead to an incomplete picture of the company's overall financial health and performance.

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A 50% mark-up means that the selling price of the product is 50% more than its cost price. For example, if the cost price of a product is $100, adding a 50% mark-up would mean selling it for $150 (100 + 50% of 100). To calculate the margin, we need to determine what percentage of the selling price is profit. Since the mark-up is 50%, we know that the cost price is 2/3 of the selling price (100% + 50% = 150%, and 100% is 2/3 of 150%). Therefore, the margin is 1/3 of the selling price, which is 33 1/3%. So the answer is: 33 1/3%.

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The concept that enables a business to determine the actual profit or loss for a particular period is the accrual concept. This concept recognizes revenue and expenses when they are earned or incurred, regardless of when the cash is actually received or paid out. In other words, under the accrual concept, revenue is recognized when it is earned, even if the customer hasn't paid yet, and expenses are recognized when they are incurred, even if the business hasn't paid for them yet. By doing this, the business is able to more accurately match its revenue and expenses for a particular period, which allows it to determine its true profit or loss. For example, if a business provides services in January but doesn't receive payment until February, under the accrual concept, the revenue would still be recognized in January because that's when the services were provided. Likewise, if a business incurs expenses in December but doesn't pay for them until January, under the accrual concept, the expenses would still be recognized in December because that's when they were incurred. Overall, the accrual concept helps businesses to better understand their financial performance over a given period, and is an important tool for decision-making and planning.

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An unpresented cheque is a transaction that would cause the cash book balance to be less than the bank statement balance. This occurs when you have written a cheque but the recipient has not yet deposited it into their bank account, and therefore it has not yet been processed by your bank. When you reconcile your cash book (which records all your transactions) with your bank statement, you may have recorded the cheque in your cash book, but it has not yet appeared in your bank statement. This means that your cash book balance will be higher than your bank statement balance. For example, if you wrote a cheque for $50 to pay a supplier, and they have not yet deposited it into their bank account, your cash book will show a decrease of $50, but your bank statement will not reflect this decrease until the cheque is deposited and processed by the bank. Therefore, if you have unpresented cheques in your cash book, your cash book balance will be higher than your bank statement balance, and this will cause a difference between the two balances.

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The final stage of the accounting process is reporting. After all the financial transactions have been recorded and summarized, the next step is to prepare financial statements that provide useful information about the financial performance and position of the business to various stakeholders, such as investors, creditors, and government agencies. Reporting involves preparing and presenting financial statements, such as the balance sheet, income statement, and cash flow statement, in accordance with accounting principles and standards. These financial statements provide information about the financial health of the business, including its assets, liabilities, revenues, expenses, and cash flows. In summary, reporting is the final stage of the accounting process, which involves preparing and presenting financial statements that provide information about the financial performance and position of the business.

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a) The imprest system of petty cash bookkeeping is a method where a fixed amount of cash is kept in a petty cash fund and is used to make small, routine payments. The petty cashier is responsible for managing the petty cash fund and keeping track of all cash disbursements.

Under the imprest system, the petty cashier is given an initial sum of money, called the "imprest amount," to cover expected expenses. As the petty cashier makes payments, they record the transactions in the petty cash book, indicating the date, the recipient, the purpose of the payment, and the amount. The petty cashier should also keep receipts to support the payments.

At regular intervals, the petty cashier reconciles the petty cash book with the actual cash on hand. If the cash on hand is less than the imprest amount, the petty cashier makes up the difference by requesting a reimbursement. If the cash on hand is more than the imprest amount, the petty cashier returns the excess to the company.

b) Two disadvantages of the imprest system of bookkeeping in petty cash book are:

1. Limited Funds: The petty cash fund is limited to the imprest amount, so it may not be enough to cover unexpected expenses or larger payments.
2. Lack of Oversight: The petty cashier has complete control over the petty cash fund and may not be subject to the same level of scrutiny as other forms of expenditures. This can lead to mismanagement or fraudulent activity if the petty cashier is not trustworthy.

c) Five uses of petty cash vouchers are:

1. Reimbursements: Petty cash vouchers can be used to reimburse employees for small, out-of-pocket expenses they incurred while performing their job duties.
2. Purchases: Petty cash vouchers can be used to make small purchases, such as office supplies or refreshments for meetings.
3. Cash Advances: Petty cash vouchers can be used to provide employees with a cash advance for business-related expenses.
4. Payments to Vendors: Petty cash vouchers can be used to make payments to vendors for goods or services received.
5. Refunds: Petty cash vouchers can be used to provide refunds to customers or clients for overpayments or returns.

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(a) Accounting concept refers to a set of assumptions, principles, and standards that guide the preparation and presentation of financial statements. These concepts help to ensure consistency and comparability in financial reporting across different organizations and industries.

(b) The following are the explanations of the six accounting concepts:

1. Business Entity Concept: This concept states that the business should be treated as a separate entity from its owners. This means that all financial transactions and records should be recorded separately from the personal transactions and records of the owners.
2. Accrual Concept: This concept states that revenue and expenses should be recognized in the financial statements when they are earned or incurred, regardless of when the cash is received or paid. This helps to provide a more accurate picture of the financial performance of the business.
3. Going Concern Concept: This concept assumes that the business will continue to operate for the foreseeable future. This means that assets are valued at their expected future usefulness, and liabilities are valued at their expected future payment dates.
4. Consistency Concept: This concept states that the same accounting methods and principles should be used consistently from one period to the next. This helps to ensure comparability in financial statements over time.
5. Periodicity Concept: This concept states that financial statements should be prepared and presented at regular intervals, such as monthly, quarterly, or annually. This helps to provide timely information to stakeholders.
6. Historical Cost Concept: This concept states that assets should be recorded in the financial statements at their original cost, rather than their current market value. This helps to ensure objectivity and reliability in financial reporting.

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(a)

(i) Entrance fees: This refers to a one-time payment made by members of a not-for-profit organization upon joining the organization. Entrance fees are usually intended to cover the costs of admitting new members, such as administrative expenses or membership materials. Entrance fees are usually distinct from membership dues or subscription fees, which are recurring payments made by members over a period of time.

(ii) Subscription: This refers to the regular payments made by members of a not-for-profit organization to support the ongoing activities of the organization. Subscription fees are usually charged on a monthly, quarterly, or annual basis, and are used to cover the organization's operating expenses, such as rent, salaries, and supplies.

(b)

1. Income and expenditure account is a financial statement that shows the organization's revenue and expenses for a given period.
2. It is prepared on an accrual basis, meaning that revenue and expenses are recorded when they are earned or incurred, regardless of when payment is received or made.
3. The account is divided into two sections: the income section, which shows the sources of the organization's revenue, and the expenditure section, which shows the organization's expenses.
4. The account is used to calculate the organization's net income or net loss for the period. If revenue exceeds expenses, the organization has a net income, while if expenses exceed revenue, the organization has a net loss.
5. Income and expenditure account is a summary of the organization's financial performance for the period, and is used to assess the organization's ability to generate revenue and control expenses.

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(a) A Bank Reconciliation Statement is a document that compares and reconciles the balance of a company's bank account with the balance shown on the bank statement. The purpose of the statement is to identify any differences between the two balances and to reconcile them.

(b)

(i) Bank Charges: These are fees charged by banks for services rendered to their customers. Bank charges can include charges for transactions, account maintenance, and other services provided by the bank.

(ii) Standing order: This is an instruction given by a bank customer to their bank to make regular fixed payments to a specific person or company on a particular date. Standing orders are used for regular payments such as rent or loan repayments.

(iii) Credit Transfer: This is a transaction in which money is transferred from one bank account to another. Credit transfers can be initiated by the account holder or by a third party, such as an employer, to pay salaries or wages.

(iv) Dishonoured Cheque: This is a cheque that has been returned by the bank because there are insufficient funds in the account to cover the cheque amount. A dishonoured cheque is also known as a bounced cheque.

(v) Unpresented cheque: This is a cheque that has been issued by the company but has not yet been presented to the bank for payment. The cheque amount is still included in the company's bank balance, but it is not reflected in the bank statement.

(vi) Uncredited cheque: This is a cheque that has been paid into the bank account but has not yet been cleared by the bank. The cheque amount is included in the bank statement balance, but it is not reflected in the company's bank balance until the cheque is cleared.