JAMB UTME - Principles of Accounts - 2025

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A provision for doubtful debts is an estimate, deducted from total debtors, of the amount of debt that the business expects it will not be able to collect. Because it is only an estimate, the provision is reviewed and adjusted at the end of each accounting period to match current expectations about which debts might go bad.

When the provision needed at the end of a period is smaller than the provision already carried forward from the previous period, the excess is no longer required. This excess is written back, and because it reverses an expense that had previously reduced profit, it increases the profit of the current period. In the profit and loss account, this decrease in the provision is therefore added to gross profit, in the same way as any other item of income, rather than being deducted as an expense.

An increase in the provision for doubtful debts, by comparison, would be treated as an expense and deducted from profit, since it represents a fresh charge against expected bad debts for the period.

Examination tip: treat a rising provision as an expense and a falling provision as income; only the change in the provision, not its full balance, passes through the profit and loss account each period.

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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.

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When a fixed asset is disposed of, the profit or loss on disposal is the difference between the disposal proceeds and the asset's net book value (NBV) at the time of disposal, where the net book value is what remains of the original cost after accumulated depreciation has been deducted.

1. Find the net book value at disposal. Since the disposal produced a profit, the proceeds exceeded the net book value by the amount of that profit: \[ \text{NBV} = \text{Disposal proceeds} - \text{Profit on disposal} = \#45{,}000 - \#7{,}500 = \#37{,}500 \]
2. Find the accumulated depreciation by subtracting the net book value from the original cost: \[ \text{Accumulated depreciation} = \text{Cost} - \text{NBV} = \#150{,}000 - \#37{,}500 = \#112{,}500 \]

The accumulated depreciation at the time of disposal was therefore #112,500. A frequent mistake is to subtract the disposal proceeds directly from the cost without first accounting for the profit, which skips the step of finding the true net book value and produces the wrong figure.

Examination reminder: on a disposal question, always establish the net book value first by adjusting the proceeds for the stated profit or loss, then subtract that net book value from the original cost to find accumulated depreciation.

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In government (public sector) accounting, spending by ministries and agencies can only take place once the legislature has approved the appropriation bill that authorises the year's expenditure. Because the process of approving the appropriation bill can take time, a mechanism is needed to allow essential government spending to continue before that approval is granted.

A provisional general warrant is the authority issued to permit government spending to continue, usually based on a proportion of the previous year's approved estimates, during the period before the appropriation bill for the new year has been passed into law. It bridges the gap between the start of the financial year and the date the full budget is approved. Once the appropriation bill is approved, a general warrant, or a supplementary general warrant for any additional amounts approved later, takes over as the basis for further releases. A virement warrant authorises the transfer of funds from one approved budget head to another after the budget is already in force, and a reserved expenditure warrant relates to spending charged directly on the consolidated fund rather than to expenditure requiring prior appropriation approval; neither is specifically the warrant used before the appropriation bill itself is approved.

Because it specifically authorises spending during the gap before the appropriation bill is approved, the correct term is provisional general warrant.

Examination tip: link each warrant to its stage, provisional general warrant comes before appropriation is approved, and general or supplementary general warrants come after.

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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.

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In the traditional classification of ledger accounts, every account is grouped as personal, real, or nominal. Personal accounts relate to individuals, firms, or organisations that the business owes money to or is owed money by. Nominal accounts record income and expenses, such as rent, wages, or commission. Real accounts record the tangible assets that a business owns and can physically possess, such as land, buildings, motor vehicles, machinery, and furniture; the golden rule applied to them is "debit what comes in, credit what goes out."

A motor vehicle account, a building account, and a furniture account each represent a physical, tangible asset that the business can see and touch, so each is a real account.

A patent, by contrast, is an intangible asset. It represents a legal right to exclusive use of an invention or process rather than a physical object, so it does not fit the traditional definition of a real account built around tangible property. A patent account is more appropriately treated as representing intangible fixed assets, which are kept separate in classification from the tangible real accounts.

Because it lacks physical substance while the other three accounts represent items the business can physically hold, the patent account is the one that is not a real account.

Examination tip: when a question separates "real" from other assets, check whether the item is physical property (real account) or an intangible legal right, such as a patent, trademark, or goodwill.

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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.

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A self-balancing account is one that is designed to balance on its own, independent of the rest of the ledger system, by recording, in total, the same entries that are also posted individually elsewhere. The control account is the classic example: the Sales Ledger Control Account, for instance, is debited and credited with the totals of all transactions affecting debtors (total credit sales, total cash received, total discount allowed, and so on), taken straight from the books of original entry, so it can be balanced entirely on its own and its balance checked against the sum of the individual debtor balances in the sales ledger.

A creditors account or a debtors account, taken individually, is simply one person's account within a subsidiary ledger; it does not balance itself independently in the way a control account does, since it exists as part of a wider ledger that is reconciled through the control account. A suspense account is a temporary account opened only when a trial balance fails to balance, holding the difference until the underlying errors are found and corrected; it is not a permanent self-balancing device.

Examination reminder: "self-balancing" is the specific technical description of a control account; do not confuse it with the general act of any account eventually having a balancing figure.

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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.

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In a cash book, the total income for the month is the sum of all cash received during the period, excluding the opening balance brought forward. The balance brought forward (balance b/f) represents cash carried over from the previous period and is not income earned in the current month.

From the cash book of Ibusah for February 2019, the receipts (debit) side includes:

• An opening balance brought forward from the previous month
• Income items received during February, such as commission received and cash received from debtors (e.g. Ojah)

A common error is to add the opening balance to the income items. The total of the entire debit side of the cash book (including the opening balance) comes to D 478,300, but this figure represents total receipts, not total income. Total income counts only the money actually earned or received as revenue during February.

Adding only the income transactions recorded during the month gives:

\[ \text{Total income} = \text{Sum of all income items (excluding balance b/f)} = \text{D } 278{,}000 \]

The figure D 154,800 is the total of the payments (credit) side of the cash book, which represents total expenditure, not income. The figure D 180,000 represents only one of the individual income items (commission received), not the full total.

When working with cash book questions, always distinguish between the balance brought forward (which is a carried-over asset, not current income) and the actual income transactions of the period.

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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.

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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.

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When a head office supplies goods to its branches, the usual practice, unless the question states an arrangement involving a mark-up (invoicing at selling price with a "loading" for unrealised profit), is to issue the goods at cost price, that is, the price the head office itself paid for them.

Issuing goods at cost keeps the branch's stock records straightforward: the branch simply carries the goods at what they cost the business as a whole, and any profit is only recognised when the branch actually sells the goods to outside customers. This avoids recording unearned or unrealised profit within the business's own internal transfers between head office and branch.

Prime cost and production cost describe cost concepts used in manufacturing to build up the cost of producing goods, not the value at which finished goods are transferred internally to a branch; net realisable value is the estimated selling price less costs to complete and sell, which is used for valuing stock at the lower of cost and net realisable value, not for internal goods transfers to branches.

Unless a question specifically describes a branch invoicing arrangement with an added mark-up, treat goods sent to branches as valued at cost price.

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A receipts and payments account is prepared by non-trading organisations (clubs, societies, associations) as a summary of the actual cash and bank transactions recorded in the cash book for the year. It opens with the cash/bank balance at the start of the period, lists every amount actually received on one side and every amount actually paid out on the other, and closes with the balance carried forward.

Because it is a pure summary of cash movements, it records every receipt and payment exactly as cash changed hands, regardless of whether that item relates to running the organisation day to day (revenue in nature) or to buying or selling a long-term asset (capital in nature). A payment for a new building, furniture, or equipment therefore appears in the receipts and payments account on the payments side just like a payment for stationery or refreshments, because both involved cash actually moving. This is what distinguishes it from the income and expenditure account, which excludes capital items and only reports revenue income and expenditure matched to the period they relate to.

Debtors, creditors, and prepayments, by contrast, are accrual-accounting concepts: they represent amounts owed or paid in advance that have not yet resulted in a cash movement. A receipts and payments account, being cash-based, does not disclose any of these because it only records money that has actually been received or paid.

Examination reminder: the receipts and payments account is a cash-basis summary, so it captures capital items but never debtors, creditors, or prepayments, which only appear once accrual adjustments are made in the income and expenditure account and balance sheet.

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The document that sets out the internal rules for running and managing a company, such as the rights of shareholders, the powers and duties of directors, and procedures for meetings and voting, is the Articles of Association.

The Articles govern the company's internal affairs and how it is administered day to day, which distinguishes them from the other documents listed. The Memorandum of Association instead defines the company's relationship with the outside world, stating its name, objectives, and the scope of activities it is legally permitted to undertake. A prospectus is an invitation to the public to subscribe for shares or debentures, used when raising capital, not a rulebook for internal management. A certificate of incorporation is the legal document issued by the registrar confirming that the company has been formed and now exists as a separate legal entity; it does not contain rules of internal management either.

A helpful way to separate the two founding documents: the Memorandum defines what the company can do and its relationship with outsiders, while the Articles define how the company runs itself internally.

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Every share has a nominal (face) value stated on its certificate, which is the amount originally set for that share when the company was formed. A company may issue new shares for less than this stated nominal value, and shares sold on those terms are described as being issued at a discount.

Shares sold at exactly their stated nominal value are said to be issued at face value, while shares sold for more than their nominal value are issued at a premium, with the extra amount recorded separately as a share premium. "Cumulative value" is not a recognised term for the price at which shares are issued; cumulative instead describes certain types of preference shares whose unpaid dividends carry forward to future years. Because the question specifically describes shares issued below their nominal value, the correct term is issued at a discount.

Examination reminder: keep the three issue terms distinct by comparing the issue price to the nominal value: below it is at a discount, equal to it is at face value, and above it is at a premium.

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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.

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A gross profit markup is always calculated as a percentage of cost, not of selling price. This means selling price equals cost plus the markup percentage applied to cost.

Letting the cost of sales be \( C \), the relationship is:

Substituting the given sales figure:

So the cost of sales is D 9,600, and the gross profit on this sale is \( 12{,}000 - 9{,}600 = 2{,}400 \), which checks out as 25% of the D 9,600 cost, confirming the markup was applied correctly.

A common mistake is to calculate 25% of the sales figure directly (giving D 3,000 or D 9,000) as if markup were a margin on selling price. Remember: markup is a percentage of cost, while margin (gross profit percentage on sales) is a percentage of selling price; always check which one a question specifies before dividing or multiplying.

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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.

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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.

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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.

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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.

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A trial balance is prepared by extracting the closing balance of every account in the general ledger and arranging these balances in two columns, one for debit balances and one for credit balances, as at a specific date.

This makes it, in essence, a list of accounting balances taken from the books, drawn up mainly to confirm that total debits equal total credits before the final accounts are prepared. It is not itself an account (it has no debit and credit sides recording individual transactions the way a ledger account does), so calling it "a special account" mischaracterises what it is. It also does not reveal the financial position of a business; that is the role of the balance sheet, which is prepared afterwards using the trial balance as raw material. Finally, it does not show every entry made in the books, only the net closing balance of each account, so individual transactions cannot be traced from it.

Examination reminder: distinguish a trial balance (a list of net balances used as a checking and preparation tool) from an account (which records individual debit and credit entries) and from a balance sheet (which presents the financial position after the trial balance has been used to draw up the final accounts).

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The imprest system fixes petty cash at a set amount, here \( \text{#}4{,}000 \). At the start of December, \( \text{#}517 \) remained in hand, and the cashier was reimbursed \( \text{#}3{,}483 \) to restore the float back to the full imprest amount: \( \text{#}517 + \text{#}3{,}483 = \text{#}4{,}000 \).

During the month, the following payments were made out of petty cash:

In an analysed petty cash book, each payment is recorded once in the total column and again in the analysis column that matches its nature. Stationery covers items used for writing and correspondence, which here means the notebooks and the envelopes:

The postage stamps ( \( \text{#}375 + \text{#}210 = \text{#}585 \) ) belong under a separate postage heading rather than stationery, since they are used to send items rather than to write on or contain them. Wages and the payment to the creditor are unrelated categories entirely.

Examination reminder: when a petty cash book asks for spending "on stationery," only include items genuinely used for writing, filing, or packaging correspondence; postage stamps, though often listed nearby, belong to their own analysis column.

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A spreadsheet application is software designed to organise data into rows and columns of cells, allowing calculations, formulas, and data analysis to be performed automatically. Microsoft Excel is the most widely used example of this category of software, built specifically for entering figures, applying formulas, and generating charts or summaries from tabular data, which is exactly what accounting and business record-keeping requires.

The other items serve entirely different purposes. The Internet is a global network for accessing and sharing information, not an application for organising figures. Windows is an operating system that manages the computer's hardware and runs other programs, including spreadsheet software, rather than being a spreadsheet itself. Word is a word-processing application, used to create and format text documents such as letters and reports, not to perform tabular calculations.

Examination reminder: when identifying software categories, focus on the primary function: word processors handle text, spreadsheets handle numerical/tabular data and calculations, and operating systems manage the computer as a whole.

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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).

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Discounts received are cash discounts a business is given by its suppliers for paying amounts owed promptly. Because this discount reduces what the business has to pay for goods already recorded at full price in the Purchases account, it represents a gain to the business, not a trading item.

Gains of this kind are recorded in the Profit and Loss Account, on the credit side, because they increase net profit without arising directly from the buying and selling of goods that the Trading Account measures. The Trading Account is reserved for calculating gross profit from sales, cost of sales, and closing stock, so a financial gain such as a discount received does not belong there.

It is also useful to keep discounts received and discounts allowed separate in your mind: discounts allowed are an expense to the business (debited to the Profit and Loss Account) because they represent an amount forgone from customers, while discounts received are the opposite, an income, so they are credited.

Remember that the discount received account is a gain (credit balance) that is transferred to the credit side of the Profit and Loss Account, never to the trading section of the final accounts.

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The going concern concept assumes that a business will continue operating for the foreseeable future and will not be forced to sell off its assets or cease trading in the near term. This assumption is what allows fixed assets to be recorded at cost less accumulated depreciation, on the basis that they will be used over their full working life rather than sold immediately.

When the going concern assumption no longer holds, for example because the business is being wound up or liquidated, this basis of valuation is no longer appropriate. The relevant question is no longer how much value the asset will contribute through years of use, but how much money the asset could actually be sold for now. This amount is the realizable value, the price the asset would fetch if sold in its current condition, often less than its book value because a forced or urgent sale rarely achieves full market price.

Net book value (cost less accumulated depreciation) and gross value (original cost) both assume the business will keep using the asset, which is no longer valid once going concern fails. A revalued amount reflects a fresh estimate of an asset's worth to a continuing business, which again depends on the business carrying on, not winding up.

Examination tip: once going concern no longer applies, valuation shifts from "value in continued use" to "value on immediate sale," which is the realizable value.

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Ordinary shares (also called equity shares) do not carry a fixed rate of dividend. Instead, ordinary shareholders receive whatever the directors decide to distribute after all other prior claims, including preference dividends, have been met, and after profits available for distribution have been determined for the year.

This means the dividend an ordinary shareholder receives rises and falls directly with how profitable the business has been: a strong profit year can bring a generous dividend, while a poor year, or a loss, can mean no dividend at all. Preference shares, by contrast, carry a fixed percentage rate that is set in advance and paid ahead of ordinary dividends whenever sufficient profit exists; bonus shares are additional shares issued to existing shareholders out of reserves rather than shares that carry a dividend right of their own, and forfeited shares are shares taken back by the company from a shareholder who failed to pay calls due on them.

Examination reminder: the defining feature of ordinary shares is variability: the size of the dividend depends entirely on profit performance and the directors' decision each year, unlike the fixed, prior-ranking rate attached to preference shares.

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In manufacturing accounts, the cost of raw materials consumed represents the total value of raw materials actually used in production during a period. It is calculated using the formula:

\[ \text{Cost of Raw Materials Consumed} = \text{Opening Stock of Raw Materials} + \text{Net Purchases} - \text{Closing Stock of Raw Materials} \]

where Net Purchases equals Purchases of Raw Materials plus any Carriage Inward, minus any Returns Outward on raw materials.

To solve the question:

1. Identify the opening stock of raw materials from the data provided.
2. Add the purchases of raw materials (and carriage inward, if given) to get the total raw materials available for use.
3. Subtract any returns outward on raw materials to arrive at net purchases.
4. Subtract the closing stock of raw materials from the total raw materials available.

Applying this formula to the figures provided in the table yields a cost of raw materials consumed of #43,500.

A common error is to confuse the cost of raw materials consumed with the total purchases figure (ignoring opening and closing stocks), or to add the closing stock instead of subtracting it. Another frequent mistake is to include factory overheads or direct wages in the raw materials figure, which belong to later stages of the manufacturing account.

Exam tip: Always distinguish between raw materials purchased and raw materials consumed. The consumed figure adjusts purchases for changes in raw material inventory (opening and closing stocks) and is the figure that enters the manufacturing cost calculation.

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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.

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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.

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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.

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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).

Awọn alaye Idahun

In departmental accounts, shared expenses that cannot be traced to a single department must be apportioned (shared out) between departments on some fair, logical basis that reflects how each department actually causes or benefits from the cost.

Rent is a charge for occupying physical space, so the fairest basis for sharing it out is the amount of floor area each department occupies. A department that takes up more space is naturally responsible for a larger share of the rent, regardless of how much it sells, purchases, or how many staff it employs.

Volume of sales, purchases, and number of personnel are appropriate bases for apportioning other kinds of expenses (for example, selling expenses might follow sales volume, and staff-related costs might follow personnel numbers), but none of these measures how much space a department occupies, so none of them fairly reflects the burden of a rent charge.

When apportioning any shared expense, always match the basis to what actually drives that cost: for rent and similar occupancy costs, that driver is floor area.

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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.

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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

Awọn alaye Idahun

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

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

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

Awọn alaye Idahun

A daybook (also called a subsidiary book or book of prime entry) is used to record transactions of a particular type before they are posted to the ledger accounts. The sales daybook is the book of prime entry specifically for recording sales.

Sales daybooks record only credit sales of stock, that is, goods sold to customers on account rather than for immediate cash. Each entry is normally taken from a sales invoice issued to the customer and later posted to the individual customer's account in the sales ledger and, in total, to the sales account. Cash sales of stock are recorded in the cash book, since money changes hands immediately and no debtor is created. Sales of fixed assets, whether for cash or on credit, are not recorded in the sales daybook at all, because the sales daybook is reserved for the trading stock the business normally deals in, not for disposals of assets such as vehicles, machinery, or equipment.

Because the sales daybook is limited to credit transactions in trading stock, the correct description is credit sales of stock.

Examination tip: remember the daybook and its ledger destination together, the sales daybook feeds the debtors' individual accounts and the sales account, and it never contains cash transactions or fixed-asset disposals.

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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).