JAMB UTME - Principles of Accounts - 2015

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To determine the closing capital as at 31/12/2014, we need to calculate the total assets and total liabilities of SegunOjo's business as at that date, and then subtract the total liabilities from the total assets. The resulting figure will be the closing capital. Total assets as at 31/12/2014: - Cash in hand: 1200 - Cash at bank: 2500 - Debtors: 10000 - Stock: 20500 - Furnishing: 4000 Total assets = 1200 + 2500 + 10000 + 20500 + 4000 = 41,700 Total liabilities as at 31/12/2014: - Creditors: 17000 Total liabilities = 17000 Closing capital = Total assets - Total liabilities = 41,700 - 17000 = 27,700 Therefore, the closing capital as at 31/12/2014 is 27,700. Option (D) is the correct answer.

Goods stolen at the branch is debited to

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Use the information below to answer this question.Jejelaye Plc stock records for 2009 was given below:Jan 1 received 100 units at ₦1.00Jan 8 received 260 units at ₦1.05Jan 20 issued 700units at .........Feb 3 received 400 units at ₦1.15What will be the issued price of 700 units, using simple average method

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simple average method usually add up all receipt prices ahead of the issued material divided by 2

The ware and tear of a fixed assets of a company which is chargeable to company’s financial statement is called ------------------------------

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The correct answer is "depreciation". Depreciation is a non-cash expense that represents the wear and tear of a fixed asset over time. Fixed assets are long-term assets, such as buildings, machinery, and equipment, that are used to produce goods or services. Depreciation is used to spread the cost of these assets over their useful life, which is typically several years. Depreciation is important because it reduces the value of an asset on a company's balance sheet, which in turn affects its financial statements. By including depreciation in its financial statements, a company can better reflect the true cost of using its assets, which can help investors and other stakeholders make more informed decisions.

What is the ledger entry for sale of generator on credit to Patrick?

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Patrick is receiving and should be debited while generator account is giving

Use the information below to answer this question:

$\begin{array}{cc}\text{Raw materials Jan.}& 5,000\\ \text{Raw materials Dec.}& 5,800\\ \text{Purchase of raw materials}& 45,000\\ \text{Salary}& 61,000\\ \text{Factory lubricant}& 2,050\\ \text{plant depreciation}& 1,300\\ \text{Factory insurance}& 1,250\end{array}$

The prime cost for the company is

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The prime cost are direct cost,direct material cost, direct labour cost and direct expenses.

Therefore:

Raw materials (jan)5000

Add purchases 45,000

Less raw materials (dec) 5,800

Cost of raw materials consume 44,200

Prime cost 169,200

If the partnership agreement does not specify how net profit is to be divided, the profit should be divided .

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If the partnership agreement does not specify how the net profit is to be divided, then the profit should be divided equally among all partners. This means that each partner would receive an equal share of the profits, regardless of their individual contributions or investments in the partnership. This is a default method of dividing profits in the absence of any specific agreement between the partners.

If a trail balance is in agreement, one of the statement is untrue

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If a trial balance is in agreement, it does not necessarily mean that the accounting system is error-free. A trial balance is simply a tool used to check the mathematical accuracy of the accounting system. It lists all the accounts in the ledger with their debit and credit balances. The total debits should equal the total credits. If they do, the trial balance is said to "balance." While a balanced trial balance is a good indication that the equal debit and credit entries were recorded for each transaction and the debit and credit from the journal were posted to the accounts, it does not guarantee that the account balances were correctly computed. For example, a company may have recorded a transaction incorrectly in both the debit and credit accounts, resulting in an overall balanced trial balance but incorrect account balances. Alternatively, a company may have accidentally transposed numbers when recording transactions, resulting in a balanced trial balance but incorrect account balances. Therefore, while a balanced trial balance is an important step in the accounting process, it is not a guarantee that all accounts have been recorded and computed correctly. Additional checks and balances should be performed to ensure the accuracy of the accounting system.

Which of the following is not a proper form of the accounting equation

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The interest of a petty cashier is ₦2450

Expenses N Printing 420 Cleaning 250 Stamp and postage 175 How much was received to maintain the interest at the end of the month?

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To realize an asset means to

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To realize an asset means to turn it into cash or its equivalent, such as selling it for money. When you realize an asset, you're essentially converting the asset into a liquid form that can be easily used or spent. This could involve selling a physical asset, like a car or a house, or selling a financial asset, like stocks or bonds. Once you've realized an asset, you have the cash or funds to use for other purposes, such as investing, paying off debt, or making a purchase. So, to realize an asset means to convert it into cash or its equivalent, so that it can be used or spent more easily.

Capital reserves includes the following except

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general reserves is not a form of capital reserves. It is considered as revenue reserves

The income and expenditure account of a club is the same as

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The income and expenditure account of a club is the same as a profit and loss account. A profit and loss account is a financial statement that shows a company's revenues, expenses, gains, and losses over a specific period, usually a year. The purpose of the profit and loss account is to determine whether the business has made a profit or a loss during the accounting period. Similarly, the income and expenditure account of a club is a financial statement that shows the club's income and expenses over a specific period. It is used to determine whether the club has a surplus or a deficit during that period. The income and expenditure account is prepared on the basis of the accrual accounting system, where income is recognized when earned, and expenses are recognized when incurred, regardless of when the cash is received or paid. In contrast, a cash book is a financial record of cash transactions of the club, including receipts and payments. It does not show the overall financial performance of the club over a specific period, as does the income and expenditure account. Therefore, the income and expenditure account of a club is the same as a profit and loss account, as they both serve the same purpose of determining the financial performance of an organization over a specific period.

Which of the following is not a feature of accounting information?

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The feature that is not a feature of accounting information is "affordability." Accounting information provides data and insights that are essential for businesses and individuals to make informed financial decisions. There are several features of accounting information that are important to ensure that the information is reliable and useful. First, accounting information should be timely, which means that it is available when it is needed. This allows users of the information to make decisions based on current and relevant data. Second, accounting information should be accurate, which means that it is free from errors and reflects the true financial position of the business or individual. Third, accounting information should be complete, which means that it includes all relevant information and data that is necessary for making informed financial decisions. However, affordability is not a feature of accounting information. While the cost of obtaining accounting information can vary depending on the complexity and scope of the information needed, affordability is not a characteristic of the information itself. Instead, the cost of obtaining accounting information is a practical consideration that individuals and businesses must take into account when deciding whether or not to seek out accounting information.

Use the information below to answer this question.Dangote acquired Dantata’s business for ₦350,000. The total asset work were ₦820,000 and liabilities amounted to ₦640,000The double entry to record the goodwill in the books is debt

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The correct double entry to record the goodwill in the books is: "goodwill account and credit purchase of business account." When a business is purchased for a price that exceeds the fair value of its identifiable assets and liabilities, the excess amount is called "goodwill." Goodwill represents the value of the business's reputation, customer base, and other intangible assets that are not recognized on the balance sheet. In this case, Dangote acquired Dantata's business for ₦350,000, which is less than the total asset worth of ₦820,000 but more than the liabilities of ₦640,000. This means that there is goodwill of ₦170,000 (₦820,000 - ₦640,000 - ₦350,000) associated with the acquisition. To record the goodwill in the books, the goodwill account should be debited for ₦170,000, and the purchase of business account should be credited for ₦350,000 (the purchase price). This entry recognizes the value of the goodwill and the cost of acquiring the business. Therefore, is the correct answer.

The act of making necessary adjustment after comparing the actual cost with targeted cost is cost ----------------------------

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The act of making necessary adjustments after comparing the actual cost with the targeted cost is cost control. Cost control refers to the process of managing and regulating costs incurred by an organization or a project. It involves comparing the actual costs incurred to the budgeted or targeted costs and making necessary adjustments to bring the costs back in line with the budget. The main goal of cost control is to ensure that an organization or project does not exceed its budget and to maximize its efficiency and profitability. Effective cost control involves monitoring costs regularly, identifying areas where cost savings can be made, and implementing cost-saving measures.

Use the information below to answer this question:

$\begin{array}{cc}\text{Stock}& 11,250\\ \text{Debtors}& 18,750\\ \text{Creditors}& 3,750\\ \text{Bank}& 4,000\\ \text{Net profit}& 7,500\\ \text{Net}& 60,000\end{array}$

Determine the debtors collection period.

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Use the information below to answer this question.A limited liability company has an authorized shares capital of 50 million split into 100 millions shares. 80million shares are offered for subscriptions at 60k per share in full on application. These have been fully subscribed on issueWhat is the nominal value of each share

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The nominal value of each share is ₦0.50. Authorized share capital is the maximum amount of share capital that a company is allowed to issue, while issued share capital is the actual amount of share capital that the company has offered to shareholders and has been accepted. In this case, the authorized share capital is 50 million and the company has split it into 100 million shares. However, only 80 million shares have been offered for subscription, and they have been fully subscribed on issue at a price of 60k per share. To calculate the nominal value of each share, we can divide the total amount of issued share capital (which is 80 million shares x 60k per share = 4.8 billion) by the total number of shares issued (which is 80 million shares). This gives us a nominal value of ₦0.06 per share. Therefore, the correct answer is option D: ₦0.50. Note that this is not the same as the issue price of the shares, which was 60k per share. The issue price is the price at which the shares were offered to shareholders and is usually higher than the nominal value.

Keeping records under single entry system has the advantage of

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One of the items listed below will not be found in a company’s memorandum and article of association. Which is it?

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Bank signatories will not be found in a company's memorandum and articles of association. A memorandum of association and articles of association are legal documents that outline the rules and regulations of a company. They usually include information about the company's purpose, location, and powers of the directors. However, information about bank signatories, or the individuals who are authorized to sign on behalf of the company for banking transactions, is not typically included in these documents. This information is typically kept separate, as it may change over time and is not directly related to the governance of the company.

Sai Baba made sales of ₦10,000 having computed his gross profit % to sales to be 20. His opening stock was ₦250 and ending stock is ₦200. Calculate his purchases.

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The gross profit percentage of sales would be

20% x ₦10,000 = ₦2000

If cost of sales + gross profit = ₦10,000 = ₦2000

:. ₦8000 + ₦2000 = ₦10,000

If cost of goods available for sales less closing stock

= cost of sales

:. ₦8200 + ₦200 = ₦8000

Hence; cost of goods available for sale = opening stock + purchases

:. ₦8200 = ₦250 + A

= ₦8200 – ₦250

=₦7950

The accounting convention that state that stock should be value that the lower of cost and net realized value is --------------- convention

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The accounting convention that states that stock should be valued at the lower of cost and net realized value is called the "prudence" convention. The prudence convention requires accountants to be cautious when valuing assets, such as stock, and to err on the side of caution when there is uncertainty about their value. In the case of stock, the convention suggests that it should be valued at either the cost at which it was purchased or the net realized value that it can be sold for, whichever is lower. This approach ensures that the financial statements of a company do not overstate the value of its stock, which could mislead investors and other stakeholders. Instead, it provides a conservative estimate of the stock's value that takes into account any potential losses that may occur.

A sales for ₦2,570 was recorded in the sales day book as ₦2750. The error committed was

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This type of error deals directly with the wrong use of figures

The loss made by a non profit making organization is called

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The loss made by a non-profit organization is called a "deficit". A deficit occurs when the organization's expenses exceed its revenue or funding sources. In other words, the organization is spending more money than it is bringing in. Non-profit organizations, unlike for-profit companies, do not exist to make a profit for shareholders or owners. Instead, they have a mission to serve a particular cause or group of people. They rely on donations, grants, and other sources of funding to support their operations. When a non-profit organization has a deficit, it can be a cause for concern because it means that the organization may not be able to fulfill its mission and serve its beneficiaries effectively. However, deficits can be managed and addressed through strategies such as increasing revenue, reducing expenses, or seeking additional funding sources.

The purpose of a trading account is to ascertain

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The purpose of a trading account is to ascertain the gross profit or loss made by a company during a specific period of time, usually a year. In simple terms, a trading account is a financial statement that shows the revenue generated from the sale of goods or services and the cost of producing or purchasing those goods or services. It includes the cost of goods sold, which is the total cost of all the goods sold during the period, and the revenue from sales. The difference between these two figures is the gross profit or loss. The gross profit or loss is an important measure of a company's profitability and provides valuable information for decision-making. If a company has a high gross profit, it means that it is generating a significant amount of revenue from its sales and is able to cover its costs of production. On the other hand, if a company has a low or negative gross profit, it may indicate that it is not generating enough revenue from sales to cover its costs, which can have implications for its long-term viability. Therefore, the purpose of a trading account is to provide information about a company's revenue and expenses related to the sale of goods or services, and to calculate the gross profit or loss made during a specific period, which is a crucial measure of a company's financial performance.

The following account are prepared when goods are sent to branch except

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Use the following information to answer this question.

Provision for bad debt 1500

Additional information

1. Bad debt written off amount to 3000

2. Debtors balance as at the end of the year is 28,000

3. Provision for bad debts stand at 10%

How much is to be charged to profit and loss account as provision for bad debt?

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Being that debtors balance minus bad debt written off multiplied by 10% and subtracted from the initial provision

28000 – 3000 = 25,000 X 10% = 2500

:. 2500 – 1500 = 1,000 (increase in provisions)

Which of the following cannot be realized?

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The option that cannot be realized is "goodwill." Goodwill is an intangible asset that represents the value of a business beyond its tangible assets, such as property, equipment, and inventory. It includes the value of the company's reputation, brand recognition, customer loyalty, and other factors that contribute to the company's overall worth. Goodwill cannot be realized because it is not a physical asset that can be bought or sold separately from the business itself. It only exists as part of the overall value of the business. For example, if a business is sold for a price that includes goodwill, the seller cannot expect to receive a separate payment specifically for the goodwill. In contrast, creditors and debtors are realizable because they represent actual financial obligations between two parties that can be settled through payment or other means. Motor vehicles are also realizable because they are physical assets that can be sold or traded for a specific amount of money.

Use the following information to answer this question.Club building 400,000Subscription prepaid 3,000Sport kits 150,000Bar creditors 85,000Subscription owing 32,000What is the club’s total liabilities

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i.e. creditors plus subscription in advance 85000 + 3000 = 88,000

Use the information below to answer this question:

$\begin{array}{ccc}& \text{Dept A}& \text{Dept B}\\ \text{Sales}& 180,000& 150,000\\ \text{Cost of sales}& 79,000& 85,000\\ \text{Expense}& 28,000& 40,000\end{array}$

How much is the gross profit for department A?

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To calculate the gross profit for department A, you need to subtract the cost of sales from the sales revenue. Sales revenue for department A = ₦180,000 Cost of sales for department A = ₦79,000 Therefore, the gross profit for department A is: Gross profit = Sales revenue - Cost of sales Gross profit = ₦180,000 - ₦79,000 Gross profit = ₦101,000 So, the correct answer is ₦101,000.

The accounting concepts which assumes that business will continue to be in existence into the foresee ablefure is

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The accounting concept that assumes that a business will continue to operate into the foreseeable future is called the "going concern" concept. This concept is based on the idea that a business will not be liquidated or cease operations in the near future, but rather will continue to operate and fulfill its obligations to its stakeholders. This assumption is important because it allows accountants to value assets, liabilities, and equity based on the assumption that the business will continue to operate. This makes it easier to prepare financial statements, which provide important information to investors, creditors, and other stakeholders about the financial health of the business. For example, if a business is assumed to be a going concern, its assets will be valued at their expected future use, rather than their liquidation value. This means that equipment and buildings, for example, will be valued at their expected useful life, rather than the amount they could be sold for if the business were to be liquidated. Overall, the going concern concept is an important assumption that helps ensure that financial statements accurately reflect the financial position and performance of a business.

Accounting information is used by investors and creditors of a company to predict

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dishonoured cheques are added to uncredited cheques just like standing order and bank charges.

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Dishonoured cheques are not added to uncredited cheques, standing order, or bank charges. Uncredited cheques refer to cheques that have been received by a business but have not yet been cleared by the bank. These cheques are added to the business's cash book as receipts but are not immediately added to the bank balance because they have not been credited to the account by the bank. Standing order refers to a regular, fixed payment that is made from a bank account, such as rent or loan payments. These payments are deducted automatically by the bank and are included in the bank statement. Bank charges refer to the fees charged by the bank for various services such as account maintenance, overdrafts, or returned cheques. These charges are deducted from the bank account by the bank and are included in the bank statement. Dishonoured cheques refer to cheques that have been returned by the bank unpaid, usually due to insufficient funds or other issues with the account. These cheques are not included in the uncredited cheques or any other receipts in the cash book because they are not a valid form of payment. Instead, they are recorded in the cash book as a reduction in the bank balance. In summary, dishonoured cheques are not added to uncredited cheques, standing orders, or bank charges. They are treated as a reduction in the bank balance and are recorded separately in the cash book.

Specific principles, bases, conventions, rules and practices adopted by an enterprise in preparing and presenting financial statements are known as ---------------------

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Financial accounting is a systematic process of recording, analyzing and reporting financial transactions and events to provide information that is useful in making business decisions. The specific principles, bases, conventions, rules, and practices adopted by an enterprise in preparing and presenting financial statements are known as accounting policies. These policies help ensure that the financial statements are consistent, reliable, and comparable from one period to another, and are in accordance with applicable accounting standards and regulations. In a simple way, accounting policies set the guidelines for how financial information is recorded and presented in financial statements.

Which of the following is shown in the profit and loss appropriation account of a company

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The profit and loss appropriation account of a company shows how the company's profits are allocated or distributed after deducting various expenses and taxes. It typically includes items such as interest charges, depreciation, directors' emoluments, and dividends. Interest charges are the costs incurred by the company for borrowing money from external sources, such as banks or bondholders. These costs are deducted from the company's profits before they are allocated to other purposes. Depreciation is a non-cash expense that reflects the reduction in value of the company's assets over time. It is deducted from the company's profits to account for the wear and tear of its assets. Directors' emoluments refer to the compensation paid to the company's directors for their services. This expense is also deducted from the company's profits before they are allocated to other purposes. Dividends are the payments made to the company's shareholders out of its profits. The profit and loss appropriation account shows how much of the company's profits are being allocated to dividends. In summary, the profit and loss appropriation account of a company shows how its profits are distributed after deducting various expenses, including interest charges, depreciation, directors' emoluments, and dividends.

The process of cost apportionment is carried out so that

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Cost apportionment is the sharing of commonly incurred expenses proportionately where two or more cost centres are involved

Which of the following is true in public sector accounting? Cost of assets is

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In government account, assets are written off in their year of purchase.

The basis of accounting for public sector is

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This is the basis for recording in government accounting where revenue are recorded when cash is received.

Use the information below to answer this question.A business has three departments x, y and zYou are given the following information Selling and distribution expenses ₦5200

Rent for the year₦6000

Department turnover floor space in square metres X ₦60,000 80 Y ₦80,000 60 Z ₦100,000 60How much rent is apportioned to department Z?

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To determine how much rent is apportioned to department Z, we need to use the floor space occupied by department Z as a percentage of the total floor space occupied by all three departments. The total floor space occupied by all three departments is: 80 sqm (Department X) + 60 sqm (Department Y) + 60 sqm (Department Z) = 200 sqm The percentage of floor space occupied by department Z is: 60 sqm (Department Z) / 200 sqm (Total floor space) = 0.3 or 30% To apportion the rent to department Z, we need to multiply the total rent of ₦6,000 by the percentage of floor space occupied by department Z: ₦6,000 x 0.3 = ₦1,800 Therefore, the rent apportioned to department Z is ₦1,800.

Use the information below to answer this question.Timo and Chris are computer engineers who went into partnership as Teachi and Co. Timo brought cash of₦12,000 furniture worth of ₦18,000 and vehicle worth of 70,000. Chris equally brought in cash of 10,000 his building valued at 105,000 and personal computers worth ₦35,000.What is the profit sharing ratio if it’s based on capital contribution by Teechi and Co?

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To determine the profit sharing ratio based on capital contribution, we need to calculate the total capital contributed by each partner. Timo's total capital = ₦12,000 (cash) + ₦18,000 (furniture) + ₦70,000 (vehicle) = ₦100,000 Chris's total capital = ₦10,000 (cash) + ₦105,000 (building) + ₦35,000 (personal computers) = ₦150,000 The total capital contributed by Teechi and Co. is the sum of Timo's and Chris's capital: Total capital = ₦100,000 + ₦150,000 = ₦250,000 The profit sharing ratio based on capital contribution is the proportion of the total capital contributed by each partner. Timo's proportion = ₦100,000 / ₦250,000 = 2/5 Chris's proportion = ₦150,000 / ₦250,000 = 3/5 Therefore, the profit sharing ratio based on capital contribution by Teechi and Co. is 2:3, which means that Timo will receive 2 parts of the profit for every 5 parts received by Chris.

If rent account is debited instead of rate account, the error committed is that of;

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The following accounting entries are made when bad debt is recovered

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When bad debt is recovered, the appropriate accounting entries to be made depend on the original entry made when the bad debt was written off. Assuming that the original entry was a debit to bad debt expense account and a credit to accounts receivable: The correct accounting entry when bad debt is recovered is to debit the accounts receivable account and credit the bad debt recovered account. This reflects the fact that the amount owed by the customer is being received and the previously written-off bad debt is being reversed. Therefore, the correct option is: debit debtors accounts and credit recovered account.

If sales return is understated, it implies that ------------------------------ is overstated

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If sales returns are understated, it implies that the sales figure is overstated. Imagine a scenario where a company reports $100,000 in sales, but in reality, some of those sales were returned by customers. If the company only reports $80,000 in sales returns, then it means the actual amount of sales returns is higher, and therefore, the reported sales figure of $100,000 is overstated. So, if sales returns are understated, it means the sales figure is overstated.

Derive the stock turnover period.(Average stock = 23,000. Cost of sales = 300,000 year = 365 days).

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The stock turnover period measures the average number of days it takes a company to sell its entire inventory or stock. It is calculated by dividing the average stock by the cost of sales per day. To find the stock turnover period, we first need to calculate the cost of sales per day, which is simply the total cost of sales divided by the number of days in the year: Cost of sales per day = Cost of sales / Number of days = 300,000 / 365 = 821.92 Next, we divide the average stock by the cost of sales per day: Stock turnover period = Average stock / Cost of sales per day = 23,000 / 821.92 = 28.01 days (rounded to the nearest whole number) Therefore, the stock turnover period is approximately 28 days. This means that, on average, it takes the company 28 days to sell its entire inventory or stock.

When shares are sold at more than the per value, they are said to have been issued at

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When shares are sold at a price that is higher than their nominal or face value, they are said to have been issued at a premium. The nominal value of a share is the minimum value at which it can be issued as specified in the memorandum of association. The premium is the amount paid by the buyer of the share over and above its nominal value. For example, if a company issues shares with a nominal value of $1 and sells them at $2, the shares are issued at a premium of $1. The premium amount is added to the share capital of the company, and it represents the excess amount that investors are willing to pay for the shares. The issuance of shares at a premium is a common practice in the stock market. It can help companies raise more capital than they would have been able to with shares issued at par or below par value. This is because investors are willing to pay a premium for shares of a company that is performing well, has good growth potential, or has a strong market reputation. In summary, when shares are sold at a price higher than their nominal or face value, they are said to have been issued at a premium. The premium represents the excess amount that investors are willing to pay for the shares, and it can help companies raise more capital.

Preliminary expenses is an example of

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Preliminary expenses are an example of fictitious assets. Fictitious assets are those assets that do not have any physical existence, but represent certain expenses or losses incurred by a company that are yet to be written off. Preliminary expenses refer to the expenses incurred by a company during its formation or before the start of its business operations. These expenses include legal fees, registration fees, and other expenses related to the incorporation of the company. Since these expenses cannot be considered as tangible assets, they are classified as fictitious assets. Fictitious assets do not have any realizable value and cannot be sold, as they do not represent any tangible assets of the company. However, these expenses can be written off over a period of time and are reflected in the company's balance sheet as a deferred charge or an intangible asset.

Which of the following accounts is debited when a delivery van is sold for cash?

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When a delivery van is sold for cash, the "cash account" is debited. In accounting, every transaction involves at least two accounts, one to be debited and the other to be credited. In this transaction, the "delivery van account" is credited since it represents a tangible asset that is being sold. On the other hand, the "cash account" is debited, as cash is received in exchange for the delivery van. The "sales account" is not debited in this transaction because it only records the revenue earned from the sale of goods or services. The delivery van is not a product or service sold by the business, but rather a capital asset used for transportation purposes. The "profit and loss accounts" are not affected by the sale of a delivery van for cash since they are used to record revenues, expenses, gains, and losses that occur during the normal course of business operations. The sale of a capital asset like a delivery van falls outside of normal business operations and is recorded separately in the balance sheet. In summary, the "cash account" is debited when a delivery van is sold for cash, representing the inflow of cash into the business as a result of the sale of the delivery van.

What does liquidity ratio measure?

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A liquidity ratio is a financial ratio that measures the ability of a company to meet its current obligations (i.e., debts due within one year) using its current assets (i.e., assets that can be easily converted into cash within a year). In other words, it measures the company's short-term solvency or its ability to pay off its debts on time. There are different types of liquidity ratios, such as the current ratio and the quick ratio. The current ratio compares a company's current assets to its current liabilities, while the quick ratio (also called the acid-test ratio) only considers the most liquid assets, such as cash and marketable securities, and compares them to the current liabilities. Investors and creditors use liquidity ratios to assess a company's ability to manage its cash flow and avoid liquidity problems. A high liquidity ratio indicates that the company has enough short-term assets to cover its short-term debts, while a low liquidity ratio may suggest that the company may struggle to pay off its debts when they become due. However, a very high liquidity ratio may also indicate that the company is not using its assets efficiently, as it is holding too much cash and not investing it in growth opportunities.

Calculate the total purchase of a business from the given information, cash purchases 3000; payments to creditors 54,000; creditors at the beginning 4000; creditors at the end 2,000

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Total purchases = credit purchases plus cash purchases i.e. ₦52000 + ₦3000 = ₦55,000

An advantage of using accounting ratios is that

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An advantage of using accounting ratios is that they facilitate decision making. Accounting ratios are useful tools for evaluating the financial performance of a business, as they provide insight into how well the business is managing its finances. By comparing different ratios, such as the current ratio or return on investment, investors and managers can gain a better understanding of the company's financial health and make informed decisions about how to improve it. For example, if a company's current ratio is low, it may indicate that the company is having difficulty paying its short-term debts, which could lead to financial trouble down the road. By using accounting ratios to identify areas of weakness, the company can take steps to address them, such as reducing expenses or increasing revenue. Overall, accounting ratios are a valuable tool for decision making because they help to provide a clear picture of a company's financial situation and can be used to identify areas for improvement.