NOUN TMA App

Support

A payment of N1,250 cash for newspaper is not posted to either the cash book nor newspapers account in the ledger. The transaction is therefore omitted from the accounting records. This is an error of;

Omission



The goods or services been paid for but its benefit is yet to be consumed either in full or part is termed ?

Prepayment

The figures that will overstate the profit should be disregarded; rather, the profit should be understated. This accounting convention is called;

Prudence

One of the following is not an essential of accounting;

Duality

Accounting is a science because

it follows a systematic and organised body of knowledge



One of the following is not a reason for dishonoured cheques;

Cheque Denied



One of the following is not a quality of accounting;

Value


The double entry principle states that;

for every debit entry for a transaction, there must be a corresponding credit entry for the same transaction, and for every credit entry for a transaction, there must be a corresponding debit entry for the same transaction





Revaluation reserve is an example;

Capital Reserves



Government water usage of N15,000 for December 2015, but bill was received in January 2016. It means that the amount was owed as at December 31, 2015. This is a perfect example of ;
Question 8Answer

a.
Accruals


It is expected that the debit side (cash received) at the end of the period should be greater than the credit side (cash payment). The difference will be the cash balance that will be used for the business for the next period. This cash balance is referred to as;

a.
balance b/d for the next period




Those users of an accounting information that are interested in the profit and dividend of a company are called;

Shareholders



Where sales account was added up in excess by N2,000 and the purchases account also added up by N2,000, this error is known as;

Compensation

The three branches of accounting are, auditing, management accounting and

Financial



The term used to describe the difference between current assets over current liabilities is called

working capital



The reduction in price given to a customer who purchase in large quantity is called
Question 2Answer

a.
Trade discount




The concept which states that the value of assets should be stated or recorded at cost price or the original cost is called

Cost concept



The branch of accounting that is concerned with the cost of goods produced or services rendered in an organization is known as

cost accounting


Accounting is being discussed in four natures which are science, language, information system and
Question 7Answer

a.
Profession


Prepayment is a charge to what class of assets
Question 3Answer

a.
current assets



The concept of accounting that sees an organization as a legal entity, separate from its owners is called

Entity concept




The quality of a good information should be complete enough to give the user full information with which decision can be reached is known as

Completeness



A trial balance is a proof of accuracy of

double entry in the ledgers



The principal book of accounts where the double entry principle is completed is called _
Question 1Answer

a.
ledger



In preparation of bank reconciliation statement, uncredited cheques are added to the balance as per

cash book



The principal accountant officer of Nigeria is called the

accountant general of the federation



Creditors at start was N4, 650, and at close N2, 480, cash paid to suppliers during the year amounted to N12, 000. Credit purchases for the year is valued at?

d.
9830



A sale of goods to Ben was not posted. This is an error of

ommission




Income and expenditure accounts are called

nominal account


Subscription in advance is an example of

prepayment





The authority of the accountant-general to disburse from government fund is called

warrant




Considering not-for-profit making organization, the cash book is summarized in the form of
Question 5Answer

a.
receipt and payment account



The cash provided for the petty cashier is called

petty cash



Which method of preparing trial balance assumes that if equals are subtracted from equals, the remainders are equal”
Question 1Answer

a.
balance method



The cash book is divided into two sides, the left side records all cash receipts while the right side records

all cash payment




Those business documents confirming the occurrence of financial transaction between two or more parties is called
Question 2Answer

a.
source document



The classification of expenditures into capital and revenue help to maintain the accounting concept called

consistency




The reduction in the value of an asset as a result of wear and tear is called..

d.
depreciation



The process of making the balance on the bank column of a cash book to agree with the balance on the bank statement received from the bank is known as

bank reconciliation statement



Which of the following is not a source document
Question 7Answer

a.
ledger



Which of the following source document is regarded as a negotiable instrument

c.
cheque



When an entity draws more cash from its bank account more than it actually has with the bank is known as

bank overdraft




sales ledgers contains those customers who buy goods on credit and owe the company,. This ledger is also called;

debtors ledger



ACC203 NOUN EXAM




1.	The following are users of accounting information except; ans- fraudsters

2.	Which of the following is not a branch of accounting? ans- Investment

3.	An inducement given to debtors for paying their debt on time is called? ans- Cash discount

4.	How many professional accounting bodies in Nigeria?
ans-2

5.	From the following, who is responsible to report on the true and fair view of an organisational financial statement?
ans- An auditor

6.	One of the following is not a subsidiary book
ans- Ledger proper

7.	All the following except one is not a current asset items. ans- Creditor

8.	Which of the following is not a nature of accounting?
ans- Accounting as an art

9.	The functions of accounting as it relates to the information system of an orgainisation includes the following except:
ans-

10.	The accounting concept in which the organisation is viewed as a legal entity separate from its owners is called?
ans-  Entity concept

11.	One of the following is not a current asset items.

Creditor

12.	Which of these is not a function of information system of an orgainisation: Relevance

13.	Who is responsible to report on the true and fair view of an organisational financial statement?

An auditor

14.	The concept of accounting in which the organisation is viewed as a legal entity separate from its owners is known as?

Entity concept

15.	All the following are branches of accounting except? Investment
 

1.	Which among the following is not a cause of errors in accounting.
...........Cross accounting and recording

2.	The correction of the errors committed will necessitate the use of??
..........trial balance

3.	When cash is withdrawn from the bank for office use,how is the transaction effected?
.............dr cash and cr bank

4.	A very good example of capital expenditure is..
...........Extension

5.	All but one of the following is not the benefit of trial balance.
...........it punish fraudsters

6.	One of the following is not a method of preparing trial balance?.
..............average method

7.	The cash provided for the petty cashier for starting is called?
............petty cash

8.	The money spent to acquire property of permanent nature for individuals and organisation is called what?
................capital expenditure

9.	The accounts that contains the number of customers who buys goods on credit from the company is called?

.................sales ledger

10.	The accounts that take records of income and expenditure of the business is called?
...............nominal accounts
 

 
ACC203 NOUN PQ







The correction of the errors committed will necessitate the use of……
suspense account (Trial balance)

The two government recognized accounting professional bodies in Nigeria are: Association of National Accountants of Nigeria and Institute of Chartered Accountants of Nigeria

The cash provided for the petty cashier for starting is called?
Imprest

A very good example of capital expenditure is..
Building

The accounts that take records of income and expenditure of the business is called? Norminal account



The preparing of profit and loss account is to determine; Net profit

One of the following is not an advantage of control account.
It lacks accurecy

All but one is not an item of profit and loss account; Carriage inward

1.	The financial statement that displays the revenues and expenses of a company for a period of timeis called __
Income statement

2.	One of the following is not a user of accounting information.
creditor

5.	A __ is used to record a business event as they occur throughout the year cash book

6.	A contra asset account has what type of balance?
Credit

7.	The correction of the errors committed will necessitate the use of............
Trial balnce

8.	NOUN bought furniture on credit from FG. Which of the following journal entries will be made for this transaction in NOUN books?
Dr. Purchases Cr. NOUN

9.	One of the following is not a benefit of trial balance.
it serves the state of company\'s liquidity

10. The account format that displays debits, credits, balances, and headings is
 
called ___
T- Account

One of these is not an advantage of control account.
It lacks accurecy

All but one is not a method of depreciation.
backward method

The type of reserve that is distrbuted to the shareholders and other capital providers in form of debenturs interest, retained profit is called? Capital reserve

One of these errors can affect the balancing of trial balance.
Commission

One of these is not a reason why cheque may be dishonoured;
Signed cheque

Profit or loss of an organisation during a particular period is ascertained from
________
Financial Statement of the business

When cash is withdrawn from the bank for office use,how is the transaction effected?

Dr cash and Cr bank

Which of these is not a function of information system of an orgainisation:
Relevance

Accountants use Generally Accepted Accounting Principles (GAAP) to make the
financial information communicatednI. relevantnII. reliablenIII. comparablenIV
profitable
I, II and III

Which of the following users assesses the attractiveness of investing in a
business?
Financial analysts

Which of the following principles assumes that a business will continue for a long time?

Going concern

Which of the following describes the practical framework of bookkeeping? Classifying, recording and summarizing

One of the accounting principles is
Double entry system

The process of accounting is needed to:nI. take a holidaynII. assist in decision makingnIII. invest in start up of a businessnIV. keeping track money spent II, III and IV

Which of the following jobs dfunction check accounting in ledgers and financial
statements?
Audit

Which of the following highlights the correct order of the stages in the accounting cycle?
 
Journalizing, posting to the ledger, trial balance and final accounts

The father of book keeping is
Lucas Pacioli

The maintenance and recording of the books of accounts in a systematic manner similar to procedures in a laboratory make accounting A science


One of the accounting principles is
Double entry system

Which of the following principles assumes that a business will continue for a long time?

Going concern

Which of the following jobs dfunction check accounting in ledgers and financial
statements?
Audit

Which of the following jobs dfunction check accounting in ledgers and financial statements?

_______ is the amount of money taken from business purse for personal use.
Drawings

The financial statement prepared through financial accounting is to ascertain the________________

profit or loss of an organisation during a particular period

The recording of business transactions in a systematic manner is called ___________

book keeping

The purpose of triall balance is to ____________
Test arithmetic accuracy of business transactions

The following are users of accounting information except;_____________
Central bank of Nigeria

The two column cash book is one of the subsidiary books of account used to record
cash and _______________
Bank

__________ helps organisation in controlling and minimising their costs.
Cost accounting

The documents that are exchanged between buyers and sellers which are binding on
both parties are called ________
Source documents in accounting

Accounting concepts that deals with continity of the business is called
_______________
Going Concern Concept

_______ is a branch of accounting that uses different quantitative analysis tools
to project for the future of an organisation Management accounting

An inducement given to debtors for paying their debt on time is called?
 
Cash discount

The process of accounting is needed to:I. take a holidayII. assist in decision makingIII. invest in start up of a businessIV. keeping track money spent II, III and IV

One of the following is not a current asset items.
All the following except one is not a current asset items.
Creditor

The following are users of accounting information except;_____________
Central bank of Nigeria (fraudsters)

All of the following are users of accounting information except; Fraudsters

One of the following is not a subsidiary book.
Ledger proper

Which is an intangible asset?
Goodwill

Accountants use Generally Accepted Accounting Principles (GAAP) to make the
financial information communicatedI. relevantII. reliableIII. comparableIV
profitable
I, II and III

The recording of business transactions in a systematic manner is called ___________

book keeping

Which statement is not true about reasons for using international accounting standards?

Narrows the areas of difference between companies


_______ is the amount of money taken from business purse for personal use.
Answer: Drawings

The financial statement prepared through financial accounting is to ascertain the________________

Answer: profit or loss of an organisation during a particular period

The recording of business transactions in a systematic manner is called ___________

Answer: book keeping

The purpose of triall balance is to ____________
Answer: Test arithmetic accuracy of business transactions

The following are users of accounting information except;_____________
Answer: Central bank of Nigeria

The two column cash book is one of the subsidiary books of account used to record
cash and _______________
Answer: Bank

__________ helps organisation in controlling and minimising their costs.
Answer: Cost accounting

The documents that are exchanged between buyers and sellers which are binding on
 
both parties are called ________
Answer: Source documents in accounting

Accounting concepts that deals with continity of the business is called
_______________
Answer: Going Concern Concept

_______ is a branch of accounting that uses different quantitative analysis tools
to project for the future of an organisation Answer: Management accounting

Accountants use Generally Accepted Accounting Principles (GAAP) to make the
financial information communicatednI. relevantnII. reliablenIII. comparablenIV
profitable
I, II and III

Which of the following users assesses the attractiveness of investing in a
business?
Financial analysts

Which of the following principles assumes that a business will continue for a long time?

Going concern

Which of the following describes the practical framework of bookkeeping? Classifying, recording and summarizing

One of the accounting principles is
Double entry system

The process of accounting is needed to:nI. take a holidaynII. assist in decision makingnIII. invest in start up of a businessnIV. keeping track money spent II, III and IV

Which of the following jobs dfunction check accounting in ledgers and financial
statements?
Audit

Which of the following highlights the correct order of the stages in the accounting cycle?

Journalizing, posting to the ledger, trial balance and final accounts

The father of book keeping is
Lucas Pacioli

The maintenance and recording of the books of accounts in a systematic manner similar to procedures in a laboratory make accounting A science


There are two professional accounting bodies in Nigeria
TRUE\'

__________ are principles upon which preparation of accounting records are based
Accounting concepts

____________are written financial information exchange between two or more parties
as a result of engaging in business transaction Source documents
 
One of the following is not a a source document Trial balance

The principal book of accounts where the double entry principle is completed is
called _________
all of the above

sees an organisation as a legal entity, separate and distinct from its owners The entity concept

Institute of Chartered Accountants of Nigeria is the only recognized accounting
body in Nigeria
False

_______ occur as a result of posting the correct amount or figure to the wrong
account, without deviating from double entry principle Errors of commission

One of the following is not a function of accounting information system Making sure business makes enough profits

The two categories of users of accounting information are ___________
receiver and giver

_______ is a branch of accounting that uses different quantitative analysis tools
to project for the future of an organisation Management accounting

Auditing _______________
is an independent examination of the books of accounts, records and financial statement of an organisation by an independent person called an auditor

Drawings is ____________
is the amount of money taken from business purse for personal use

Financial statements will not make any meaning to many people without ____________

Accountants

The essence of internal control mechanism is to _______
all of the above

One of the following is not a function of an accountant Ensuring business makes profits

Profit or loss of an organisation during a particular period is ascertained from
________
Financial Statement of the business

The external auditing service provided by accountants is to___________________
ensure that complete and reliable financial statements

One of the accountant functions is to safeguard the assets of an organisation
through _____________
all of the above

There are two professional accounting bodies in Nigeria
TRUE\'

1. The father of book keeping is
 
Lucas Pacioli

3.	The documents that are exchanged between buyers and sellers which are binding on both parties are called ____
Source document

4.	The functions of accounting as it relates to the information system of an orgainisation includes the following except:
Relevance

5.	____ helps organisation in controlling and minimising their costs..
Cost accounting

7.	___ is a branch of accounting that uses different quantitative analysis tools to project for the future of an organisation
Management accounting

8.	There are ____ professional accounting bodies in Nigeria
2

9.	Who is responsible to report on the true and fair view of an organisational financial statement?
An auditor

10.	Which of the following users assesses the attractiveness of investing in a business?
Financial analysts



1.	Which accounting concept satisfy the valuation criteria? Going concern, Realisation, Cost

The money spent to acquire property of permanent nature for individuals and organisation is called what?

2.	____________ is money spent to acquire or purchase property of permanent nature for individuals and organisations.
Capital expenditure

3.	Which statement is not true about reasons for using international accounting standards?
Narrows the areas of difference between companies

4.	Which is an intangible asset?
Goodwill

5.	There are ________ professional accounting bodies in Nigeria
2

6.	The ________ state that profit should not be anticipated when recognising profit to be recorded in financial statement, but the profit should be based on actual profit earned or realised for the particular period

Convention of prudence

7.	Computerised accounting system has the following demerits except__________
The risk or loss of data is reduced to the barest minimum

8.	The documents that are exchanged between buyers and sellers which are binding on both parties are called ________
 
Journal

9.	Ufedo is a customer of Jason. The balance on Ufedoâ€™s account in Ejuraâ€™s books is N200 debit. Ufedo sends Ejura a cheque for N50. What is the balance on Ufedoâ€™s account after this transaction?

Sell to other buyers

10.	The external auditing service provided by accountants is to ensure complete and reliable ________
Financial statement


1.	All the following except one is not a current asset items. Creditor

2.	The accounting concept in which the organisation is viewed as a legal entity separate from its owners is called?
Entity concept

3.	From the following, who is responsible to report on the true and fair view of an organisational financial statement?
An auditor

4.	Which of the following is not a nature of accounting?
Accounting as an art

5.	One of the following is not a subsidiary book. Ledger proper

6.	Which of the following is not a branch of accounting? Investment

7.	The following are users of accounting information except; fraudsters

8.	How many professional accounting bodies in Nigeria?
2

9.	An inducement given to debtors for paying their debt on time is called? Cash discount

10.	The functions of accounting as it relates to the information system of an orgainisation includes the following except:
Relevance


1.	One of the following is not a method of preparing trial balance——Ans: Average Method

2.	The cash provided for the petty cashier is called? Ans: petty cash

3.	The correction of the errors committed will necessitate the use of ——Ans: trial balance

4.	The money spent to acquire or purchase property of permanent nature for individuals and organisation is called what? Ans: Capital Expenditure

5.	An example of revenue expenditure is: extension
 
6.	When cash is withdrawn from the bank to the office,how is the transaction effected?
Ans: Debit cash and credit bank.

7.	The accounts that contains the number of customers who buys goods on credit and owe the company is called? Ans: Sales ledger

All but one of the following is not the benefit of trial balance.
One of the following is not the benefit of trial balance....
Ans: it punishes fraudsters

9.	The accounts that take records of income and expenditure of the business is called?
Ans: Norminal account

10.	One of the following is not a cause of errors in accounting. Ans: cross counting and recording

1).The process of collecting, recording, presenting, analyzing and interpreting financial information for the users of financial statements is referred to as___
(A)This concept provides the basis for the formation of the accounting equation
(B)Accounting
(C)Auditing
(D)None of the above
Ans: This concept provides the basis for the formation of the accounting equation



2).Amount taken from business account for the chairman\'s daughter birthday is
called _
(A)consumption
(B)Withdrawal
(C)Draings
(D)Losses
Ans: Draings

3).The branches of accounting include the following, except __ Business finance

4).Transactions that are recorded in the journal include the following except;___
(A)Transfers from one account to another (B)Recording of opening and closing entriest
(C)Recording of special transactions like revaluation of assets, creation of goodwill

(D)All of the above
Ans: All of the above



5).The aim of employee is to be sure of continuous existence of the organisation
which will guarantee their __.
(A)Employment
(B)Existence
(C)Employability
(D)Preparing financial statement
Ans: Employment
 
6).Statements prepared to know profit or loss and financial position of the
business are called___
(A)Trial balance
(B)Financial statement
(C)Bank Reconciliation Statement
(D)All of the above
Ans: Financial statement



7).____ is used to record goods previously bought for resale but later returned to
the supplier due to one reason or the other.
(A)Carriage inward
(B)Return inward journal
(C)Purchases journal
(D)Sales journal
Ans: Return inward journal



8).The double entry principle states that for every debit entry for a transaction, there must be ___

Ans: A corresponding credit entry for the another ledger transaction, and for every credit entry for a transaction



9).The double entry system signifies a way of recording all accounting
transactions____
(A)Once
(B)Twice
(C)Severally
(D)Multiple entries
Ans: Twice



10).Which of the following is not a nature of accounting?
(A)Accounting as a profession
(B)Accounting as a language
(C)Accounting as an art
(D)Accounting as a science
Ans: Accounting as an art

------------------------------------------------------------------



1.	Which of the following items are used to prepare a balance sheet?nI. The name of the firmnII. The name of the financial statementnIII. The date it is being preparednIV. The style use for the preparation of the statement

I and II

I and IV

--->> I, II and III
 
I, III and IV

2.	The Trading, Profit and Loss account is also called Balance Sheet

Cash Flow Statement

--->> Income Statement

Trial Balance

3.	The beginning of accounting was

--->> stewardship Record keeping Book keeping all of the above
4.	NOUN bought furniture on credit from FG. Which of the following journal entries will be made for this transaction in NOUN books?

Dr. FurniturenCr. Cash

Dr. FurniturenCr. NOUN

--->> Dr. Purchases Cr. NOUN

Dr. NOUNnCr. Purchases

5.	Given that an item is subject to a 20% trade discount, its price is N1 000. What is the sale price?

N200

--->> N800

N1000

N1200

6.	Which of the following are assets?nI. Cash and cash at banknII. Land and fixturesnIII. Loans and creditorsnIV. Mortgage loans and debtors

--->> I and II

I and III

I and IV

II	and III

7.	The purchase of a motor car on credit from an Automotive Company for use in a firm should be recorded as

Dr. Maintenance of vehicle expensenCr.	Automotive Company
 
Dr. PurchasesnCr. Automotive Company

--->> Dr. Motor vehicle Cr. Automotive Company Dr. Motor vehicle Cr. Cash

Given the following from T. Singh Assets and LiabilitiesMachinery N20 000. What is T. Singh capital?Cash in hand N2,000Land and buildings N200,000Bank loan N50,000Creditors N5,000Debtors N10,000

Given the following from T. Singh's Assets and LiabilitiesnMachinery N20 000. What is T. Singhâ€™s capital?nCash in hand N2,000nLand and buildings N200,000nBank loan N50,000nCreditors N5,000nDebtors N10,000

N55 000

--->> N177 000

N232 000

N287 000

9.	Which of the following concepts use the rules â€˜every transaction affects two or more ledger accountsâ€™

Going concern

--->> Double entry system

Money measurement

Periodicity

10.	The elements of the accounting equation arenI. AssetsnII. LiabilitiesnIII. Trial BalancenIV. Capital

I, II and III

--->> I, II and IV

I, III and IV

II, III and IV


1.	All the following except one is not a current asset items. Cash

Bank

--->> Creditor

Debtor

2.	The accounting concept in which the organisation is viewed as a legal entity separate from its owners is called?

Cost concept
 
Going concern concept

--->> Entity concept

Matching concept

3.	From the following, who is responsible to report on the true and fair view of an organisational financial statement?





--->> An auditor

Public users

4.	Which of the following is not a nature of accounting? Accounting as a profession

Accounting as a language

--->> Accounting as an art

Accounting as a science

5.	One of the following is not a subsidiary book. Sales day book

Return inward



--->> Ledger proper

6.	Which of the following is not a branch of accounting? Auditing

--->> Investment

Financial accounting

Managerial accounting

7.	The following are users of accounting information except; Shareholders

Suppliers

--->> fraudsters

Investors

8. How many professional accounting bodies in Nigeria?

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November 19, 2025 12:51 PM

Support

3

--->> 2

4

5

9. An inducement given to debtors for paying their debt on time is called?

Quantity discount

Discount

Trade discount

--->> Cash discount

10. The functions of accounting as it relates to the information system of an orgainisation includes the following except:

--->> Relevance

Measurement

Decision making

Forecasting

1. Ufser of financial information that is interested in accounting information to determine the company income tax to be paid, compliance with government rules and regulations governing the operation of the business is

Shareholders

--->> Government

Employees

Banks

2. Accountants prepare some analysis such as â€¦â€¦â€¦â€¦â€¦. from the financial statements

--->> all of the above

cash ratio

liquidity ratio

returns on investment

3. Accounting services carried out at the local, state and federal government ministries and parastatals is

Management accounting

Cost accounting

Private sector accounting

--->> Public sector accounting

4. Essential features of a business organisation include; i. The need to make profit. Ii. There is an element of risk. Iii. Aim of continuity. Iv. There is no exchange between the parties

i, ii and iv

i, iii and iv

--->> i, ii and iii

All of the above

5. Given that at the beginning of the month, a petty cashier was given N1 000 out of which she spent N800. How much will she be reimbursed?

N200

--->> N800

N1000

N1800

6. Credit notes issued for goods returned to a supplier will be entered firstly in

the

General journal

Returns inwards journal

--->> Returns outwards journal

Petty cash journal

7. Which of the following books of original entry should be used to record credit sales?

--->> Sales journal

Sales returns journal

Purchases journal

Purchases returns journal

8. Which of the following entries will be entered in the General journal? Sold goods on credit

Goods purchased and paid by cash

--->> Investment made by the owner

Purchase goods on credit

9. One of the following is not a function of an accountant Preparation of Financial Statements

Maintenance of Books of Accounts

Interpretation of Financial Statements

--->> None of the above

10. A debit note is a document made out when goods are returned

overcharged

sold

--->> undercharged

A payment of N1,250 cash for newspaper is not posted to either the cash book nor

newspapers account in the ledger. The transaction is therefore omitted from the
accounting records. This is an error of;
c.
Omission

One among the following is not a source document; d.

Commission note

An error that occurs in a situation where the initial figure or amount used in posting a financial transaction from the subsidiary books is incorrect and the double entry is completed using the incorrect amount is called; b.

Original entry

One of the following is not a class of account; d.

Debit account

This is a set of numbers and codes that define each account head and also differentiate between classes of accounts c.

Chart of account

Accounting information should be free from thoughts and feelings of the person preparing the report. This an essentials of accounting known as; a.

Objectivity

Financial advisory services provides the following services to an organisation
except;
a.
engage in tax planning for organisation with the possibility of minimising the tax payable.

The process of checking the arithmetical accuracy of the accounts in the ledger is
called;
c.
Trial balance

When cash is removed from the office and paid into the bank, which entry should be
made;
b.
Debit the bank column and Credit the cash column

It is expected that the debit side (cash received) at the end of the period should
be greater than the credit side (cash payment). The difference will be the cash
balance that will be used for the business for the next period. This cash balance
is referred to as;
d.
balance b/d for the next period.

Those with necessary professional accounting qualifications who have been certified

as fit and qualified to practice accounting by government approved accounting
professional bodies are called;
b.
Accountants

The user of an accounting information that is intersted in the liquidity position
of a company is called;
b.
Loan providers

An accounting information users that wants to know how stable the company is financially in order to meet their bills and invoices as at when due and their debt be paid at the required time by the company are called; a.

Suppliers

The functions of accountants are multi facet because; d.

it covers all the process involve in the conception of business idea, the birth of the business, its sustenance and possibly the winding-up of the business if need be.

One of the following is not posted in the control account; b.

Trade discount

The correction of the errors committed will necessitate the use of……
suspense account (Trial balance)

The two government recognized accounting professional bodies in Nigeria are: Association of National Accountants of Nigeria and Institute of Chartered Accountants of Nigeria

The cash provided for the petty cashier for starting is called?
Imprest

A very good example of capital expenditure is..
Building

The accounts that take records of income and expenditure of the business is called? Norminal account

The preparing of profit and loss account is to determine; Net profit

One of the following is not an advantage of control account.
It lacks accurecy

All but one is not an item of profit and loss account; Carriage inward

1. The financial statement that displays the revenues and expenses of a company for a period of timeis called __
Income statement

2. One of the following is not a user of accounting information.
creditor

5. A __ is used to record a business event as they occur throughout the year cash book

6. A contra asset account has what type of balance?
Credit

7. The correction of the errors committed will necessitate the use of............
Trial balnce

8. NOUN bought furniture on credit from FG. Which of the following journal entries will be made for this transaction in NOUN books?
Dr. Purchases Cr. NOUN

9. One of the following is not a benefit of trial balance.
it serves the state of company\'s liquidity

10. The account format that displays debits, credits, balances, and headings is called ___
T- Account

One of these is not an advantage of control account.
It lacks accurecy

All but one is not a method of depreciation.
backward method

The type of reserve that is distrbuted to the shareholders and other capital providers in form of debenturs interest, retained profit is called? Capital reserve

One of these errors can affect the balancing of trial balance.
Commission

One of these is not a reason why cheque may be dishonoured;
Signed cheque

Profit or loss of an organisation during a particular period is ascertained from
________
Financial Statement of the business

When cash is withdrawn from the bank for office use,how is the transaction effected?

Dr cash and Cr bank

Which of these is not a function of information system of an orgainisation:
Relevance

Accountants use Generally Accepted Accounting Principles (GAAP) to make the
financial information communicatednI. relevantnII. reliablenIII. comparablenIV
profitable
I, II and III

Which of the following users assesses the attractiveness of investing in a
business?
Financial analysts

Which of the following principles assumes that a business will continue for a long time?

Going concern

Which of the following describes the practical framework of bookkeeping? Classifying, recording and summarizing

One of the accounting principles is
Double entry system

The process of accounting is needed to:nI. take a holidaynII. assist in decision makingnIII. invest in start up of a businessnIV. keeping track money spent II, III and IV

Which of the following jobs dfunction check accounting in ledgers and financial
statements?
Audit

Which of the following highlights the correct order of the stages in the accounting cycle?

Journalizing, posting to the ledger, trial balance and final accounts

The father of book keeping is
Lucas Pacioli

The maintenance and recording of the books of accounts in a systematic manner similar to procedures in a laboratory make accounting A science

One of the accounting principles is
Double entry system

Which of the following principles assumes that a business will continue for a long time?

Going concern

Which of the following jobs dfunction check accounting in ledgers and financial
statements?
Audit

Which of the following jobs dfunction check accounting in ledgers and financial statements?

_______ is the amount of money taken from business purse for personal use.
Drawings

The financial statement prepared through financial accounting is to ascertain the________________

profit or loss of an organisation during a particular period

The recording of business transactions in a systematic manner is called ___________

book keeping

The purpose of triall balance is to ____________
Test arithmetic accuracy of business transactions

The following are users of accounting information except;_____________
Central bank of Nigeria

The two column cash book is one of the subsidiary books of account used to record
cash and _______________
Bank

__________ helps organisation in controlling and minimising their costs.
Cost accounting

The documents that are exchanged between buyers and sellers which are binding on
both parties are called ________
Source documents in accounting

Accounting concepts that deals with continity of the business is called
_______________
Going Concern Concept

_______ is a branch of accounting that uses different quantitative analysis tools
to project for the future of an organisation Management accounting

An inducement given to debtors for paying their debt on time is called? Cash discount

The process of accounting is needed to:I. take a holidayII. assist in decision makingIII. invest in start up of a businessIV. keeping track money spent II, III and IV

One of the following is not a current asset items.
All the following except one is not a current asset items.

Creditor

The following are users of accounting information except;_____________
Central bank of Nigeria (fraudsters)

All of the following are users of accounting information except; Fraudsters

One of the following is not a subsidiary book.
Ledger proper

Which is an intangible asset?
Goodwill

Accountants use Generally Accepted Accounting Principles (GAAP) to make the
financial information communicatedI. relevantII. reliableIII. comparableIV
profitable
I, II and III

The recording of business transactions in a systematic manner is called ___________

book keeping

Which statement is not true about reasons for using international accounting standards?

Narrows the areas of difference between companies

_______ is the amount of money taken from business purse for personal use.
Answer: Drawings

The financial statement prepared through financial accounting is to ascertain the________________

Answer: profit or loss of an organisation during a particular period

The recording of business transactions in a systematic manner is called ___________

Answer: book keeping

The purpose of triall balance is to ____________
Answer: Test arithmetic accuracy of business transactions

The following are users of accounting information except;_____________
Answer: Central bank of Nigeria

The two column cash book is one of the subsidiary books of account used to record
cash and _______________
Answer: Bank

__________ helps organisation in controlling and minimising their costs.
Answer: Cost accounting

The documents that are exchanged between buyers and sellers which are binding on
both parties are called ________
Answer: Source documents in accounting

Accounting concepts that deals with continity of the business is called
_______________
Answer: Going Concern Concept

_______ is a branch of accounting that uses different quantitative analysis tools

to project for the future of an organisation Answer: Management accounting

Accountants use Generally Accepted Accounting Principles (GAAP) to make the
financial information communicatednI. relevantnII. reliablenIII. comparablenIV
profitable
I, II and III

Which of the following users assesses the attractiveness of investing in a
business?
Financial analysts

Which of the following principles assumes that a business will continue for a long time?

Going concern

Which of the following describes the practical framework of bookkeeping? Classifying, recording and summarizing

One of the accounting principles is
Double entry system

The process of accounting is needed to:nI. take a holidaynII. assist in decision makingnIII. invest in start up of a businessnIV. keeping track money spent II, III and IV

Which of the following jobs dfunction check accounting in ledgers and financial
statements?
Audit

Which of the following highlights the correct order of the stages in the accounting cycle?

Journalizing, posting to the ledger, trial balance and final accounts

The father of book keeping is
Lucas Pacioli

The maintenance and recording of the books of accounts in a systematic manner similar to procedures in a laboratory make accounting A science

There are two professional accounting bodies in Nigeria
TRUE\'

__________ are principles upon which preparation of accounting records are based
Accounting concepts

____________are written financial information exchange between two or more parties
as a result of engaging in business transaction Source documents

One of the following is not a a source document Trial balance

The principal book of accounts where the double entry principle is completed is
called _________
all of the above

sees an organisation as a legal entity, separate and distinct from its owners

The entity concept

Institute of Chartered Accountants of Nigeria is the only recognized accounting
body in Nigeria
False

_______ occur as a result of posting the correct amount or figure to the wrong
account, without deviating from double entry principle Errors of commission

One of the following is not a function of accounting information system Making sure business makes enough profits

The two categories of users of accounting information are ___________
receiver and giver

_______ is a branch of accounting that uses different quantitative analysis tools
to project for the future of an organisation Management accounting

Auditing _______________
is an independent examination of the books of accounts, records and financial statement of an organisation by an independent person called an auditor

Drawings is ____________
is the amount of money taken from business purse for personal use

Financial statements will not make any meaning to many people without ____________
Accountants

The essence of internal control mechanism is to _______
all of the above

One of the following is not a function of an accountant Ensuring business makes profits

Profit or loss of an organisation during a particular period is ascertained from
________
Financial Statement of the business

The external auditing service provided by accountants is to___________________
ensure that complete and reliable financial statements

One of the accountant functions is to safeguard the assets of an organisation
through _____________
all of the above

There are two professional accounting bodies in Nigeria
TRUE\'

1. The father of book keeping is Lucas Pacioli

3. The documents that are exchanged between buyers and sellers which are binding on both parties are called ____
Source document

4. The functions of accounting as it relates to the information system of an orgainisation includes the following except:

Relevance

5. ____ helps organisation in controlling and minimising their costs.. Cost accounting

7. ___ is a branch of accounting that uses different quantitative analysis tools to project for the future of an organisation
Management accounting

8. There are ____ professional accounting bodies in Nigeria
2

9. Who is responsible to report on the true and fair view of an organisational financial statement?
An auditor

10. Which of the following users assesses the attractiveness of investing in a business?
Financial analysts

1. Which accounting concept satisfy the valuation criteria? Going concern, Realisation, Cost

The money spent to acquire property of permanent nature for individuals and organisation is called what?

2. ____________ is money spent to acquire or purchase property of permanent nature for individuals and organisations.
Capital expenditure

3. Which statement is not true about reasons for using international accounting standards?
Narrows the areas of difference between companies

4. Which is an intangible asset?
Goodwill

5. There are ________ professional accounting bodies in Nigeria
2

6. The ________ state that profit should not be anticipated when recognising profit to be recorded in financial statement, but the profit should be based on actual profit earned or realised for the particular period

Convention of prudence

7. Computerised accounting system has the following demerits except__________
The risk or loss of data is reduced to the barest minimum

8. The documents that are exchanged between buyers and sellers which are binding on both parties are called ________
Journal

9. Ufedo is a customer of Jason. The balance on Ufedoâ€™s account in Ejuraâ€™s books is N200 debit. Ufedo sends Ejura a cheque for N50. What is the balance on Ufedoâ€™s account after this transaction?

Sell to other buyers

10. The external auditing service provided by accountants is to ensure complete and

reliable ________
Financial statement

1. All the following except one is not a current asset items. Creditor

2. The accounting concept in which the organisation is viewed as a legal entity separate from its owners is called?
Entity concept

3. From the following, who is responsible to report on the true and fair view of an organisational financial statement?
An auditor

4. Which of the following is not a nature of accounting?
Accounting as an art

5. One of the following is not a subsidiary book. Ledger proper

6. Which of the following is not a branch of accounting? Investment

7. The following are users of accounting information except; fraudsters

8. How many professional accounting bodies in Nigeria?
2

9. An inducement given to debtors for paying their debt on time is called? Cash discount

10. The functions of accounting as it relates to the information system of an orgainisation includes the following except:
Relevance

1. One of the following is not a method of preparing trial balance——Ans: Average Method

2. The cash provided for the petty cashier is called? Ans: petty cash

3. The correction of the errors committed will necessitate the use of ——Ans: trial balance

4. The money spent to acquire or purchase property of permanent nature for individuals and organisation is called what? Ans: Capital Expenditure

5. An example of revenue expenditure is: extension

6. When cash is withdrawn from the bank to the office,how is the transaction effected?
Ans: Debit cash and credit bank.

7. The accounts that contains the number of customers who buys goods on credit and owe the company is called? Ans: Sales ledger

All but one of the following is not the benefit of trial balance.

One of the following is not the benefit of trial balance....
Ans: it punishes fraudsters

9. The accounts that take records of income and expenditure of the business is called?
Ans: Norminal account

10. One of the following is not a cause of errors in accounting. Ans: cross counting and recording

1).The process of collecting, recording, presenting, analyzing and interpreting financial information for the users of financial statements is referred to as___
(A)This concept provides the basis for the formation of the accounting equation
(B)Accounting
(C)Auditing
(D)None of the above
Ans: This concept provides the basis for the formation of the accounting equation

2).Amount taken from business account for the chairman\'s daughter birthday is
called _
(A)consumption
(B)Withdrawal
(C)Draings
(D)Losses
Ans: Draings

3).The branches of accounting include the following, except __ Business finance

4).Transactions that are recorded in the journal include the following except;___

(A)Transfers from one account to another (B)Recording of opening and closing entriest
(C)Recording of special transactions like revaluation of assets, creation of goodwill

(D)All of the above
Ans: All of the above

5).The aim of employee is to be sure of continuous existence of the organisation
which will guarantee their __.
(A)Employment
(B)Existence
(C)Employability
(D)Preparing financial statement
Ans: Employment

6).Statements prepared to know profit or loss and financial position of the
business are called___
(A)Trial balance
(B)Financial statement
(C)Bank Reconciliation Statement
(D)All of the above
Ans: Financial statement

7).____ is used to record goods previously bought for resale but later returned to
the supplier due to one reason or the other.
(A)Carriage inward
(B)Return inward journal
(C)Purchases journal
(D)Sales journal
Ans: Return inward journal

8).The double entry principle states that for every debit entry for a transaction, there must be ___

Ans: A corresponding credit entry for the another ledger transaction, and for every credit entry for a transaction

9).The double entry system signifies a way of recording all accounting
transactions____
(A)Once
(B)Twice
(C)Severally
(D)Multiple entries
Ans: Twice

10).Which of the following is not a nature of accounting?
(A)Accounting as a profession
(B)Accounting as a language
(C)Accounting as an art
(D)Accounting as a science
Ans: Accounting as an art

------------------------------------------------------------------

1. Which of the following items are used to prepare a balance sheet?nI. The name of the firmnII. The name of the financial statementnIII. The date it is being preparednIV. The style use for the preparation of the statement

I and II

I and IV

--->> I, II and III

I, III and IV

2. The Trading, Profit and Loss account is also called Balance Sheet

Cash Flow Statement

--->> Income Statement

Trial Balance

3. The beginning of accounting was

--->> stewardship Record keeping Book keeping all of the above
4. NOUN bought furniture on credit from FG. Which of the following journal entries will be made for this transaction in NOUN books?

Dr. FurniturenCr. Cash

Dr. FurniturenCr. NOUN

--->> Dr. Purchases Cr. NOUN

Dr. NOUNnCr. Purchases

5. Given that an item is subject to a 20% trade discount, its price is N1 000. What is the sale price?

N200

--->> N800

N1000

N1200

6. Which of the following are assets?nI. Cash and cash at banknII. Land and fixturesnIII. Loans and creditorsnIV. Mortgage loans and debtors

--->> I and II

I and III

I and IV

II and III

7. The purchase of a motor car on credit from an Automotive Company for use in a firm should be recorded as

Dr. Maintenance of vehicle expensenCr. Automotive Company

Dr. PurchasesnCr. Automotive Company

--->> Dr. Motor vehicle Cr. Automotive Company

Dr. Motor vehicle Cr. Cash

Given the following from T. Singh Assets and LiabilitiesMachinery N20 000. What is

T. Singh capital?Cash in hand N2,000Land and buildings N200,000Bank loan N50,000Creditors N5,000Debtors N10,000

Given the following from T. Singh's Assets and LiabilitiesnMachinery N20 000. What is T. Singhâ€™s capital?nCash in hand N2,000nLand and buildings N200,000nBank loan N50,000nCreditors N5,000nDebtors N10,000

N55 000

--->> N177 000

N232 000

N287 000

9. Which of the following concepts use the rules â€˜every transaction affects two or more ledger accountsâ€™

Going concern

--->> Double entry system

Money measurement

Periodicity

10. The elements of the accounting equation arenI. AssetsnII. LiabilitiesnIII. Trial BalancenIV. Capital

I, II and III

--->> I, II and IV

I, III and IV

II, III and IV

1. All the following except one is not a current asset items.

Cash

Bank

--->> Creditor

Debtor

2. The accounting concept in which the organisation is viewed as a legal entity separate from its owners is called?

Cost concept

Going concern concept

--->> Entity concept

Matching concept

3. From the following, who is responsible to report on the true and fair view of an

organisational financial statement?

Financial accountants

Government agencies

--->> An auditor

Public users

4. Which of the following is not a nature of accounting? Accounting as a profession

Accounting as a language

--->> Accounting as an art

Accounting as a science

5. One of the following is not a subsidiary book. Sales day book

--->> Ledger proper

6. Which of the following is not a branch of accounting? Auditing

--->> Investment

Financial accounting

Managerial accounting

7. The following are users of accounting information except; Shareholders

--->> fraudsters

Investors

8. How many professional accounting bodies in Nigeria? 3

--->> 2

4

5

9. An inducement given to debtors for paying their debt on time is called? Quantity discount

Discount Trade discount
--->> Cash discount

10. The functions of accounting as it relates to the information system of an orgainisation includes the following except:

--->> Relevance

Measurement

Decision making

Forecasting

1. Ufser of financial information that is interested in accounting information to determine the company income tax to be paid, compliance with government rules and regulations governing the operation of the business is

Shareholders

--->> Government

Employees

Banks

2. Accountants prepare some analysis such as â€¦â€¦â€¦â€¦â€¦. from the financial statements

--->> all of the above

cash ratio

liquidity ratio

returns on investment

3. Accounting services carried out at the local, state and federal government ministries and parastatals is

Management accounting

Cost accounting

Private sector accounting

--->> Public sector accounting

4. Essential features of a business organisation include; i. The need to make profit. Ii. There is an element of risk. Iii. Aim of continuity. Iv. There is no

exchange between the parties

i, ii and iv

i, iii and iv

--->> i, ii and iii

All of the above

5. Given that at the beginning of the month, a petty cashier was given N1 000 out of which she spent N800. How much will she be reimbursed?

--->> N800

N1000

N1800

6. Credit notes issued for goods returned to a supplier will be entered firstly in

the

General journal

Returns inwards journal

--->> Returns outwards journal

Petty cash journal

7. Which of the following books of original entry should be used to record credit sales?

--->> Sales journal

8. Which of the following entries will be entered in the General journal? Sold goods on credit

Goods purchased and paid by cash

--->> Investment made by the owner

Purchase goods on credit

9. One of the following is not a function of an accountant Preparation of Financial Statements Maintenance of Books of Accounts

Interpretation of Financial Statements --->> None of the above

10. A debit note is a document made out when goods are returned

overcharged

sold

--->> undercharged

ACC203 TMA2

1. One of the following is not a method of preparing trial balance——Ans: Average Method
2. The cash provided for the petty cashier is called? Ans: petty cash
3. The correction of the errors committed will necessitate the use of ——Ans: trial balance
4. The money spent to acquire or purchase property of permanent nature for individuals and organisation is called what? Ans: Capital Expenditure
5. An example of revenue expenditure is: selling expenses
6. When cash is withdrawn from the bank to the office,how is the transaction effected? Ans: Debit cash and credit bank.
7. The accounts that contains the number of customers who buys goods on credit and owe the company is called? Ans: Sales ledger
8. One of the following is not the benefit of trial balance.... Ans: it punishes fraudsters
9. The accounts that take records of income and expenditure of the business is called? Ans: Norminal account
10. One of the following is not a cause of errors in accounting. Ans: cross counting and recording

9/10 scores.

ACC203 TMA2

1. One of the following is not a method of preparing trial balance——Ans: Average Method
2. The cash provided for the petty cashier is called? Ans: petty cash
3. The correction of the errors committed will necessitate the use of ——Ans: trial balance
4. The money spent to acquire or purchase property of permanent nature for individuals and organisation is called what? Ans: Capital Expenditure
5. An example of revenue expenditure is: selling expenses
6. When cash is withdrawn from the bank to the office,how is the transaction effected? Ans: Debit cash and credit bank.
7. The accounts that contains the number of customers who buys goods on credit and owe the company is called? Ans: Sales ledger
8. One of the following is not the benefit of trial balance.... Ans: it punishes fraudsters
9. The accounts that take records of income and expenditure of the business is called? Ans: Norminal account
10. One of the following is not a cause of errors in accounting. Ans: cross counting and recording

9/10 scores.

The accounts that contains the number of customers who buys goods on credit and owe

the company is called?
(C) Sales ledger

One of the following is not the benefit of trial balance.
(D) It punishes fraudsters

An example of revenue expenditure is:
(D) Extension

One of the following is not a cause of errors in accounting.
(D) Cross counting and recording

The accounts that take records of income and expenditure of the business is called?

(A) Norminal account

The money spent to acquire or purchase property of permanent nature for individuals

Account Details

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Account Name: --

Account No: --

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November 19, 2025 12:51 PM

Support

and organisation is called what?
(B) Capital expenditure

The accounts that contains the number of customers who buys goods on credit and owe

the company is called?
(C) Sales ledger

The cash provided for the petty cashier is called?
(A) Petty cash

The money spent to acquire or purchase property of permanent nature for individuals

and organisation is called what?
(B) Capital expenditure

One of the following is not a method of preparing trial balanceâ€¦.
(B) Average method

The accounts that take records of income and expenditure of the business is called?

(A) Norminal account

When cash is withdrawn from the bank to the office,how is the transaction effected?

(A) Dr cash and Cr bank

One of the following errors can affect the balancing of trial balance.
(A) Transposition error

The cheque that have been issued for payment but have not yet paid by the bank is known as?

(A) Unpresented cheque

One of these is not a reason why cheque may be dishonoured;
(A) Signed cheque

The goods and services been paid for but the benefit is yet to be enjoyed or consumed either in full or part is termed as? (C) Prepayment


One of these in not a method of depreciation.
(C) backward method

The type of reserve that is distrbuted to the shareholders and other capital providers in form of debenturs interest, retained profit is called?
 
(C) Revenue reserve

One of the following is not an item of profit and loss account;

(D) Carriage inward

The preparing of profit and loss account is to determine;
(B) Net profit

One of the following is not an advantage of control account.
(D) It lacks accurecy
 
Acc203
1:	entity concept
2:	accounting as an art

3:	ledge proper
4:	fraudster
5:	creditor
6:	investment
7:	relevance
8:	2
9:an auditor
10:cash discount
 
Acc203
1:	entity concept
2:	accounting as an art

3:	ledge proper
4:	fraudster
5:	creditor
6:	investment
7:	relevance
8:	2
9:an auditor
10:cash discount
 
Acc203
1:	entity concept
2:	accounting as an art

3:	ledge proper
4:	fraudster
5:	creditor
6:	investment
7:	relevance
8:	2
9:an auditor
10:cash discount
 
Acc203 tma2

Cross accounting and recording

trial balance
dr cash and cr bank
Extension
it punish fraudsters
average method
petty cash
capital expenditure
sales ledger
nominal accounts
 
Acc203 tma2

1.	Which among the following is not a cause of errors in accounting.
...........Cross accounting and recording

2.	The correction of the errors committed will necessitate the use of??
..........trial balance

3.	When cash is withdrawn from the bank for office use,how is the transaction effected?
.............dr cash and cr bank

4.	A very good example of capital expenditure is..
...........Extension

5.	All but one of the following is not the benefit of trial balance.
...........it punish fraudsters

6.	One of the following is not a method of preparing trial balance?.
..............average method

7.	The cash provided for the petty cashier for starting is called?
............petty cash

8.	The money spent to acquire property of permanent nature for individuals and organisation is called what?
................capital expenditure

9.	The accounts that contains the number of customers who buys goods on credit from the company is called?

.................sales ledger

10.	The accounts that take records of income and expenditure of the business is called?
...............nominal accounts
 
ACC203 TMA 1......	10/10
1	Investment
2 Relevance
3 Fraudsters
4 Cash discount
5 2
6 Creditor
7 Entity concept
8 Accounting as an art
9 Ledger proper
10 An Auditor
 

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Multiple Choice Questions (MCQs):

MCQ1: The process of collecting, recording, presenting, analyzing and interpreting financial information for the users of financial statements is referred to as_______ Answer: Accounting


MCQ2: __________ is a known career that requires an

identified path for the acquisition of specialized and/or formal education or training before rendering any service.

Answer: Accounting


MCQ3: The maintenance and recording of the books of accounts in a systematic manner

similar to procedures in a laboratory make accounting a ________ Answer: Good
subject


MCQ4: Accounting information should be free from

______of the person preparing the report

Answer: Bias



MCQ5: The qualities of accounting information include

the following, except

Answer: Relevance


MCQ6: The branches of accounting include the following, except ______ Answer: Cost
accounting


MCQ7: _____is an independent examination of the
books of accounts, records and financial statement of an organization by an independent person. Answer: Auditing

MCQ8: Which of the following is not a nature of accounting?

Answer: Accounting as a profession


MCQ9: There are ________ professional accounting
bodies in Nigeria
 
Answer: 2


MCQ10: The acquisition of key business information that includes income, expenditure, profit, assets and liabilities are made available from ____________ prepared by accountants.

Answer: Book keeping

MCQ11: Which of the followings is not one of the essential features of a business
organization?? Answer: The need to make profit and ensure adequate return for the owners


MCQ12: The auditor’s report should show the ____

view of the financial statements? Answer: ‘true and fair’


MCQ13: Every business organization is expected to keep its __________accurately and

in an orderly manner. Answer: business


MCQ14: The functions of accounting as it relates to the

information system of an organization include the
following, except____
Answer: Decision making


MCQ15: One of the following is not a user of accounting information.

Answer: Shareholders


MCQ16: One of the following is not a concept of accounting.?

Answer: Going concern


MCQ17: One of the following is not a subsidiary book.

Answer: Sales day book or sales journal



MCQ18: Next level Enterprises sold the following goods on credit in the month of June 2015. Goods sold to DaboN20,750 on June 1. On June 10, he sold 5 pieces of calculator to Daniel at N1,250 each. On June 18, Ifeanyi bought 7 pairs of shoe at N1,400 per pair; 15 pieces of mobile handset at N6,200 each and another starter pack costing N22,000 on credit from Next Level Enterprises. What is the total sales credited to sales account?

Answer: N 151,800


MCQ19: Next level Enterprises sold the following goods on credit in the month of June 2015. Goods sold to DaboN20,750 on June 1. On June 10, he sold 5 pieces of
 
calculator to Daniel at N1,250 each. On June 18, Ifeanyi bought 7 pairs of shoe at N1,400 per pair; 15 pieces of mobile handset at N6,200 each and another starter pack costing N22,000 on credit from Next Level Enterprises. What is the total sales credited to sales account?

Answer: N 151,800


MCQ20: An inducement given to debtors is called--------

Answer: Quantity discount


MCQ21: ? The reduction in price given to a customer who buys for re-sale in large quantity is called -------------

Answer: Cash discount


MCQ22: A discount given to a customer who buys in large quantity for consumption and not for re-sale is called -------

Answer: Quantity discount


MCQ23: Chop One Chop Two Ventures set up a

business on June 1, 2014 with his personal properties which he now transfers to the company as follows: Building N650,000, Motor vehicle N380,000, Cash

N12,500 and Cash at bank N18,240. A day earlier, he bought some goods on credit worth N625,000. What is the total value of assets? Answer: N 1,060,740

MCQ24: Chop One Chop Two Ventures set up a business on June 1, 2014 with his personal properties which he now transfers to the company as follows: Building N650,000, Motor vehicle N380,000, Cash N12,500 and Cash at bank N18,240. A day earlier, he bought some goods on credit worth N625,000. What is the total value of liabilities?? Answer: N 1,060,740




MCQ25: Chop One Chop Two Ventures set up a business on June 1, 2014 with his personal properties which he now transfers to the company as follows:

Building N650,000, Motor vehicle N380,000, Cash N12,500 and Cash at bank N18,240. A day earlier, he

bought some goods on credit worth N625,000. What is the total value of capital??

Answer: N 1,060,740
 
MCQ26: The following cash transactions relate to Obinna Ventures for the month of January 2019. Sales

N 25,000, Paid rent N4,000, Purchases N12,500, Electricity bills N 2,000 N, Transport expenses N 250, Sales N 14,110, Purchases N 6,230. What is the

amount of total sales??

Answer: N 39,110


MCQ27: The following cash transactions relate to Obinna Ventures for the month of January 2019. Sales N 25,000, Paid rent N4,000, Purchases N12,500, Electricity bills N 2,000 N, Transport expenses N 250, Sales N 14,110, Purchases N 6,230. What is the amount of total expenses?? Answer: N 39,110

MCQ28: Amount taken from business account for personal use is called _____? Answer:
Drawings


MCQ29: ______ is used in recording all cash

transactions.

Answer: Journals


MCQ30: The book of original entry used to record all credit transactions is
called____? Answer: Cash book


MCQ31: Any written evidence in support of a business transaction is called____? Answer: Journal


MCQ32: The sales income (Credit and Cash) of a business during a given period is
called___ Answer: Transactions


MCQ33: The following is not a type of liability?

Answer: Short term


MCQ34: Accounting provides information on ______?

Answer: Cost and income for managers


MCQ35: In journal, the business transaction is
recorded_______
Answer: Same day
 
MCQ36: The process of entering all transactions from the journal to ledger is
called____ Answer: Posting

MCQ37: One of the following is a statement of revenues and expenses for a specific
period of time Answer: Trading account


MCQ38: Statement of financial positions are prepared

Answer: Daily


MCQ39: The stocks that are meant for sale which a business has at the end of the
accounting year or a stated period or date is called………….? Answer: closing stock


MCQ40: The profit that is derived after all expenses and cost of sales have been deducted from the net income including sales of goods and other income is called

________
Answer: Gross profit


MCQ41: When preparing the statement of profit or loss, it should be done in a way to reveal the income generated, cost of sales, gross profit, other income, expenses and the __________ Answer: Net profit




MCQ42: List of balances extracted from a ledger to test arithmetic accuracy of a transaction is called __________

Answer: Trading account


MCQ43: ______is the process of making the balance on

the bank column of a cash book to agree with the balance on the bank statement received from the bank.?

Answer: Bank statement


MCQ44: The following are reasons why trial balance totals may not agree.?

Answer: Undercast


MCQ45: The cash book is divided into two sides, the left side records all cash receipts while the right side records all ________?

Answer: Cash payments


MCQ46: The following are causes of errors except;

Answer: Not following the double entry principle
 

MCQ47: One of the following errors effects the balancing of the trial balance
Answer: Omission


MCQ48: _______ explain situations where the
occurrence of one error cancel out another error that has occurred either in the same account or different accounts.?

Answer: Compensating Error


MCQ49: Goods and services that have been paid for, but the benefit is yet to be
enjoyed or consumed either in full or in part is called ______? Answer: Debtors




MCQ50: _________ is a discipline that is involved with

the recording, classification and interpretation of financial information for both profit and not-for-profit organizations.

Answer: Insurance


Fill in the Blank (FBQs):

FBQ1: Accounting is a science because it follows________ body of knowledge.?
Answer: *systematic and organised*


FBQ2: Good accounting information should be_______
to the purpose for which it is prepared Answer: *Relevant*


FBQ3: Financial accounting started from stewardship duty and is concerned with the keeping of books of accounts and preparation of financial statement for the entire organisation on _____________ Answer: *historical basis*

FBQ4: ___________ is a branch of accounting that uses
different quantitative analysis tools to project for the future of an organization. Answer: *Management accounting*

FBQ5: The acquisition of key business information that includes income, expenditure, profit, assets and liabilities are made available from ____________

prepared by accountants. Answer: *Financial accounting*


FBQ6: Accountants render their services to business organisations. Business can be seen as a regular activity between two or more parties which leads to the creation of utility that satisfies human wants in form of

______________
 
Answer: *goods and services*


FBQ7: The auditor is expected to form an _______ on
the audited financial statement after gathering various forms of audit evidence from the audit exercise. Answer: *independent opinion*

FBQ8: Every business organization is expected to keep its __________accurately and
in an orderly manner. Answer: *Financial statement*


FBQ9: The users of accounting information can be

grouped into two categories. The first category is the direct users while the second category is________ Answer: *Indirect users*

FBQ10: The government is interested in accounting information to determine the company _________ to be

paid, compliance with government rules and regulations governing the operation of the business. Answer: *Income tax*

FBQ11: Accounting concepts are rules of the game which ________ have generally come

to accept and use over the years.

Answer: *Accountants*


FBQ12: Accounting ________ refer to customs adopted
by accountants which serve as guide to the preparation of accounting records which include the financial statements.

Answer: *Conventions*


FBQ13: _________ are business documents confirming
the occurrence of financial transaction between two or more parties. Answer: *Source document*

FBQ14: A document that is used to record full details of money paid for a particular purpose is called

_____________
Answer: *Payment voucher*


FBQ15: Sales journal is a book of original entry used to record all goods sold and services rendered on

__________

Answer: *credit to a third party*
 
FBQ16: Purchases day book is a subsidiary book of account used to record all goods bought and _________ on credit.

Answer: *Services received*


FBQ17: The discount available for buying goods on credit at the point of purchase
is ___________? Answer: *Trade discount*


FBQ18: Another name for returns inwards journal is returns inwards day book or
__________ Answer: *sales return book*


FBQ19: Journal or journal proper is one of the books of original entry that is used to record any transaction

which cannot be conveniently recorded or classified into

any of the other __________
Answer: *subsidiary books*


FBQ20: The cash book is a book of original entry used

to record all __________?
Answer: *cash transactions*


FBQ21: The three column cash book is one of the subsidiary books of account used to record cash and bank transactions in addition to discounts received and

_______?
Answer: *Discount allowed*


FBQ22: ________ payments are small payments given
out for some small expenses that occur almost on daily

basis in an organization.

Answer: *Petty cash*


FBQ23: The _______ system signifies a way of recording

all accounting transactions twice in the books of account.

Answer: *Double entry*


FBQ24: ________is the principal book of accounts where

the double entry principle is completed.

Answer: *Ledger*


FBQ25: ________ is an accounting terminology used to
 
signify mistakes made while recording and/or posting financial transactions.

Answer: *Error*

FBQ26: _________ is a deliberate effort and/or attempt
to change and/or modify financial information and/or records for someone personal gains to the detriment of others.

Answer: *Fraud*


FBQ27: Expenditure is not the same as ________
Answer: *Expenses*


FBQ28: Capital expenditure is money spent to acquire or purchase property of ____

for individuals and organizations

Answer: *permanent nature*


FBQ29: Revenue expenditures are all expenditure other than __________

Answer: *capital expenditures*


FBQ30: List of balances extracted from the ledger to test arithmetic accuracy of
transactions is called _____ Answer: *Trial balance*


FBQ31: The profit realised on trading activities is called

______

Answer: *Gross profit*


FBQ32: Goods purchased for resale are called _____

Answer: *Purchases*



FBQ33: The capital market functions through the

________________

Answer: *Assets*


FBQ34: ______are those debts which in the opinion of

management of an organization may not be fully recovered Answer: *Doubtful debts*

FBQ35: bad debts will be charged on the debtors after the deduction of the bad
 
debts for the period or after the bad debts have been _________ Answer: *written
off*


FBQ36: _____ are amounts set aside out of profit earned
by a company and constitute part of shareholders fund. Answer: *Reserves*


FBQ37: The type of reserve is distributed to the shareholder and other capital providers in form of debenture interest, retained profit is called _______ Answer: *Revenue reserve*


FBQ38: Non-distributable reserves that are retained to comply with certain laws or for accounting requirement is called _______

Answer: *Capital reserve*



FBQ39: ____ are reserves not set aside for a specific

purpose.

Answer: *General reserve*


FBQ40: Any transactions that will increase the customers’ indebtedness to the organization are debited to the _________

Answer: *debtors control account*


FBQ41: The sales ledger control account is also known as _______

Answer: *debtors control account*


FBQ42: A debtor’s statement can also be regarded as a memorandum statement showing the details of

______for each debtor, which is supposed to agree with

the total amount outstanding against the customer in the general ledger. Answer: *unpaid invoices*

FBQ43: _____ is a statement sent periodically usually
once a month by a buyer to his suppliers, showing the position of their accounts up to a certain date. Answer: *Creditor’s Statement of Account*

FBQ44: _______is the process of making the balance on

the bank column of a cash book to agree with the

balance on the bank statement received from the bank. Answer: *Bank reconciliation*
 
FBQ45: Unpresented cheques will appear on the
_______of the cash book.

Answer: *credit side*


FBQ46: _______ states that revenues and expenses for

any accounting period should be matched with each other so as to bring them into the accounting period to which they relate, so that the profit or loss for the period can be ascertained.

Answer: *Matching concepts*


FBQ47: ______are business documents confirming the

occurrence of financial transaction between two or more parties.

Answer: *Source documents*


FBQ48: A ______ is a negotiable instrument that

originates from banks and it is used to withdraw money from a stated bank account in a bank. Answer: *Cheque*

FBQ49: _______is a document showing a claim or
refund in favour of the receiver Answer: *Credit note*

FBQ50: The books in which accounting transactions are first recorded before been
posted to their various accounts in the ledger are called______ Answer: *Subsidiary

books*



FBQ1: The beginning of accounting was _______

Answer: Stewardship

FBQ2: In accounting permanent records should be created whereby both the

______and the owner can have access to present and past events.
Answer: Steward

FBQ3: The owner of the business is referred to as an ____
Answer: entrepreneur

FBQ4: The earliest known originator of book keeping system was ................
Answer: Rev. Father Lucas Pacioli

FBQ5: Accounting consists of the process in designing and operating an efficient accounting information system for collection, recording, measuring, summarising, analysing and __________the results of financial transactions for a particular period to

users of financial information for them to make informed decisions.
 
Answer: Communicating

FBQ6: Accounting is a discipline involved with the recording, classification and
_______of financial information for both trading and non-trading organisations.
Answer: Interpretation

FBQ7: Sales represents total of all credit and cash sales made to a ___________
Answer: Third party

FBQ8: Accounting requires the acquisition of a specialised knowledge over a given period of time which involves the combination of_________

Answer: Theory and Practice

FBQ9: Reserves are amounts set aside out of profits earned by a company and constitute part of __________fund.

Answer: Shareholders’

FBQ10: Accounting is a ________because is a means of communicating business

information.
Answer: Language

FBQ11: Accounting does not have ________ products that can be bought and sold like

the manufacturing companies.

Answer: Physical

FBQ12: Accounting is a _________because it follows a systematic and organised body

of knowledge.
Answer: Science

FBQ13: Accounting is a ________because it is also based on some fundamental

principles which are applicable worldwide.
Answer: Management science

FBQ14: The maintenance and recording of the books of accounts in a _____manner

similar to procedures in a laboratory make accounting a science.
Answer: Systematic

FBQ15: Accounting should include enough facts and _____to satisfy the need of the

users.

Answer: Figures

FBQ16: Ability to trace all accounting transactions in a report to the source documents is important for ________to be realised.

Answer: Objectivity

FBQ17: Bank reconciliation is the process of making the balance on the bank column of a cash book to _____with the balance on the bank statement received from the bank. Answer: Agree
 
FBQ18: Accounting report should be prepared in a way that allows for quick and easy

________from one period to another.

Answer: Comparability

FBQ19: Accounting report is _______ if it is easy to change, adjust and adaptable
to

suit different kinds of users.
Answer: Flexible

FBQ20: Financial accounting is also used to determine the _________of an
organisation which shows the company’s assets and liabilities at a particular date. Answer: Financial position

FBQ21: Cost accounting helps organisation in controlling and _______their costs.

Answer: Minimising

FBQ22: Management accounting is a branch of accounting that uses different
_______analysis tools to project for the future of an organisation.

Answer: Quantitative

FBQ23: Auditing is an ______examination of the books of accounts, records and

financial statement of an organisation by an independent person called an auditor. Answer: Independent

FBQ24: Without the accountants, financial statements will not make any ______to
many people.
Answer: Meaning


FBQ25: The external auditing service provided by ________is to ensure that complete

and reliable financial statements are published or released to the public. Answer:
Accountants

FBQ26: Every business organisation is expected to keep its __________accurately and

in an orderly manner.

Answer: Financial records

FBQ27: Accounting is used to ________the financial performance of an organisation

Answer: Measure

FBQ28: Accounting makes use of _______financial data in forecasting future

performance and financial position of different organisations.
Answer: Historic

FBQ29: Shareholders are the _______of a company and they are interested in the
performance of the company
Answer: Owners
 
FBQ30: The government is interested in accounting information to determine the company income tax to be paid, _______with government rules and regulations

governing the operation of the business.
Answer: Compliance

FBQ31: The concern of the suppliers is to know how stable the company is ______in

order to meet their bills and invoices as at when due.
Answer: Financially

FBQ32: The laid down rules that are complied with in the preparation of accounting records for any organisation is _______

Answer: Accounting concept

FBQ33: The tradition for the preparation of accounting records is __________

Answer: Accounting convention

FBQ34: In recording the books of accounts, the business records are kept and treated_______from the owners even in a situation where the business is owned by a

person.
Answer: Share

FBQ35: In accounting revenues and expenses for any accounting period should be

________with each other so as to bring them into the accounting period to which
they

relate, so that the profit or loss for the period can be ascertained. Answer: Matched

FBQ36: The convention of prudence states that profit should not be ______when

recognising profit to be recorded in financial statement, but the profit should be based on actual profit earned or realised for the particular period. Answer: Anticipated

FBQ37: A cheque is a _______instrument that originates from banks and it is used to

withdraw money from a stated bank account in a bank.

Answer: Negotiable

FBQ38: A bank teller is used to ________money (cash and cheques) into an account in

a	bank. Answer: Pay

FBQ39: Credit note is a document showing a ______in favour of the receiver.
Answer: Claim

FBQ40: Discount can be defined as an _______given to customers to enable them buy

in large quantity, obtain profit margin price Answer: Inducement
 
FBQ41: Quantity discount is a price ______given to a customer who buys in large
quantity for consumption and not for re-sale.

Answer: Reduction

FBQ42: Purchases day book is a subsidiary book of account used to record all goods bought and services received on _______from a third party in the order in which they

occurred irrespective of the amount involved.
Answer: Credit

FBQ43: Journal or journal proper is one of the books of original entry that is used to record any transaction which cannot be ________recorded or classified into any of the

other subsidiary books.
Answer: Conveniently

FBQ44: The cash book is a book of original entry used to record all
_____transactions.

Answer: Cash

FBQ45: A contra entry is any transaction that has been recorded ______in an account

through a debit and a credit entry in the same account.
Answer: Twice

FBQ46: The double entry principle states that for every debit entry for a transaction, there must be a corresponding ________for the same transaction.

Answer: Credit entry

FBQ47: Ledger is the ______of accounts where the double entry principle is

completed.

Answer: Principal book

FBQ48: Error is an accounting terminology used to signify ______made while
recording

and/or posting financial transactions.
Answer: Mistakes

FBQ49: Expenditures are the money spent in an organisation in order to generate
_______either now or in the future.
Answer: Income

FBQ50: The manual accounting system refers to the keeping of accounting record by

__________of relevant posting in the books of accounts.

Answer: Handwritten

MCQ1: The accounting report should be ...........enough to give the user full
information
 
with which decision could be reached.
Answer: Complete

MCQ2: Good accounting information should be ...........to the purpose for which it
is

prepared.
Answer: relevant

MCQ3: The owner of a business is referred to as __________ ?
Answer: an entrepreneur

MCQ4: Financial accounting is prepared on ___________
Answer: Historical basis

MCQ5: Financial accounting is also used to determine the ..........of an
organisation

Answer: Financial position

MCQ6: Accounting as a form of knowledge and profession consist of different
branches except...................

Answer: Commerce

MCQ7: To find out the cost of goods produced or services rendered in an
organisation we need...............

Answer: Cost accounting

MCQ8: The acquisition of key business information that includes income, expenditure, profit, assets and liabilities are made available from ____________ prepared by accountants.

Answer: Financial Statement

MCQ9: In business, __________ refers to the process of allocating funds to meet the

needs of your business.?

Answer: Finance

MCQ10: The sole proprietorship business is also referred to as a __________

Answer: One-man- business

MCQ11: Which of the following is not a nature of accounting?

Answer: Auditing

MCQ12: Utility is the satisfaction derived from consuming a particular product or accepting a service.

Answer: Economist’s point of view

MCQ13: For financial statements to make meaning to many people, one of the
following must be prepared by an accountant. Answer: Accounting ratio

MCQ14: To investigate the adequacy of tax paid by organisations, government engages
 
the services of..........

Answer: Accountant

MCQ15: To safeguard the assets of an organisation, an Accountant employs one of the

following.............

Answer: Internal control system

MCQ16: The two government recognised accounting professional bodies in Nigeria are:

Answer: Association of National Accountants of Nigeria and Institute of Chartered Accountants of Nigeria

MCQ17: One of the following is not a direct user of accounting information

Answer: Supplier

MCQ18: Business documents that confirm the occurrence of financial transaction
between two or more parties are called.......

Answer: Source documents

MCQ19: The total of goods returned to supplier from the purchases returns day book
is transferred to the ............of the returns outwards account. Answer: Credit
side

MCQ20: The following except ____________ are recorded in the Journal Proper&nbsp;

Answer: Recording of credit sales

MCQ21: The left side of a cash book is called_____________________
Answer: Debit side


MCQ22: When cash is withdrawn from the bank to the office ________________
Answer: Credit - The bank column.

MCQ23: Contra entry can be found in___________
Answer: Two column cash book

MCQ24: When liabilities value reduces, the liabilities account should be___________.

Answer: Debited

MCQ25: The advantages of trial balance exclude one of the following_______.
Answer: It helps in preventing errors.

MCQ26: One of the following errors does not affect the agreement of trial balance

Answer: Errors of principle

MCQ27: A debtor paid N10, 500 cash but his account was credited with N10,000 while

the cash book was debited with N10,500.
Answer: Credit - Debtors Account N500

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MCQ28: Motor vehicle purchases of N660,000 was entered in the purchases account.
 
Correct the errors.

Answer: Credit -Purchases account

MCQ29: The cost of transporting goods meant for resale into the organisation is called___

Answer: Carriage Inward

MCQ30: Assets that add value to the organisation but they cannot be seen by their

nature are called_________
Answer: Intangible assets

MCQ31: Services and goods that have been consumed or enjoyed during the year but which payment has not been made either in full or in part at the end of that financial year is called_________

Answer: Accruals

MCQ32: Reserve which is distributed to the shareholder and other capital providers

in form of debenture interest, retained profit is called ________ Answer: Revenue
Reserve

MCQ33: Any transactions that will increase the customers’ indebtedness to the organisation are .........to the debtors control account

Answer: Debited

MCQ34: A statement sent periodically usually once a month by a buyer to his suppliers

is called____________

Answer: Creditor’s Statement of Account

MCQ35: The causes of the differences between the bank statement and the cash book exclude one of the following____________________

Answer: Signed cheques

MCQ36: To prepare Bank reconciliation statement start with Balance as per adjusted

cash book and add_______
Answer: Unpresented cheques

MCQ37: The accounting concept that assumes that the business will be in existence for a very long period of time without any intention to close the company later is___? Answer: Going Concern Concept

MCQ38: The traditions and customs adopted by accountants for the preparation of financial statements exclude one of the following

Answer: Money Measurement

MCQ39: A document that is used to record full details of money paid for a particular
 
purpose is called______________
Answer: Payment Voucher

MCQ40: One of the following is not a subsidiary book of account_______
Answer: Ledger account

MCQ41: Where an account of capital expenditure is treated as revenue expenditure item it is called_______________

Answer: Errors of Principle

MCQ42: Cash of N600,000 received from a debtor was recorded in the cash book only.

You are to correct the error.
Answer: Debit - Suspense Account N600,000

MCQ43: One of the following is not a branch of accounting.
Answer: Investigative accounting

MCQ44: The accounting system that recognises revenue from selling a good or service in the period which the good is sold or the service is performed is called_________ Answer: Accrual based accounting

MCQ45: The revenues that are generated outside the sales of goods or services that the firm regularly deals with are called

Answer: Discount received

MCQ46: Essential features of a business organisation exclude one of the following

Answer: The need to take risk

MCQ47: The functions of an accountant exclude one of the following.
Answer: Stock brokering

MCQ48: The professional person that reports on the true and fair view of an organisation’s financial statements is

Answer: Auditor

MCQ49: An inducement given to debtors (credit customers) for paying their debt on time or promptly within the specified time frame or period is known as

Answer: Cash Discount

MCQ50: A book used to record goods previously sold to customers but were later
returned by the buyer to the seller is known as__________ Answer: Returns Inwards
Journal



Q1 Debts which in the opinion of management of an organization may not be fully recovered are called

Doubtful debt

Q2 The amount set aside out of profit earned by a company and constitute part of shareholders fund is called

Reserve
 
Q3 Which of the following is not a type of reserve?
Shareholder reserve


Q4 Which of the following statements is incorrect?
Debtors control account is the same as statement of financial position

Q5 A statement sent periodically usually once a month by a seller to his customers, showing the position of their accounts up to a certain date

Debtor???s statement of account


Q6 A statement sent periodically, usually once a month by a buyer to his suppliers, showing the position of their accounts up to a certain date.

Creditor???s statement of account


Q7 Reconciling the bank column of the cash book and the bank statement balances is treated under

Bank reconciliation statement

Q8 The process of making the balance on the bank column of a cash book to agree with the balance on the bank statement is

Bank reconciliation statement

Q9 The differences between the balances of bank column of the cash book and bank statement could be as a result of the following except

Proficiency of the accountant

Q10 Cheques which have been issued for payment by a bank account holder but have not been presented for payment at the bank as at the date the bank prepared the bank statement are called

Unpresented cheque


Q11 Cheques deposited into the bank but have not been credited to the customer account by the bank as at the date of preparing the bank statement are called Uncredited cheque

Q12 One of the following is not a reason for dishonoured cheques:

Bank network problem

Q13 One of the following is not an advantage of bank reconciliation statement

It shows arithmetical accuracy of books of account

Q14 The principles upon which preparation of accounting records are based and which are generally accepted is

Accounting concept

Q15 A subsidiary book which can conveniently cater for recording of special transaction like revaluation of asset is

Journal proper
 

Q16 An important functions of accounting which shows expenses, assets, financial position at a given period of time is

Measurement


Q17 Any transaction that is recorded twice in an account through a debit and a credit entry in the same account is called

Contra entry

Q18 The money spent in an organization in order to generate income either now or in the future is

Expenditure


Q19 The cost of transporting goods meant for resale into the organization is Carriage inward

Q20 A set of numbers and codes that defines each account head and also differentiate between classes of account is

Codes
Chart of account


Q21 Debts which in the opinion of management of an organization may not be fully recovered are called

Doubtful debt

Q22 The amount set aside out of profit earned by a company and constitute part of shareholders fund is called

Reserve


Q23 Which of the following is not a type of reserve?
Shareholder reserve


Q24 Which of the following statements is incorrect?
Debtors control account is the same as statement of financial position

Q25 A statement sent periodically usually once a month by a seller to his customers, showing the position of their accounts up to a certain date Debtor???s statement of account

Q26 A statement sent periodically, usually once a month by a buyer to his suppliers, showing the position of their accounts up to a certain date. Creditor???s statement of account

Q27 Reconciling the bank column of the cash book and the bank statement balances is treated under

Bank reconciliation statement

Q28 The process of making the balance on the bank column of a cash book to agree with the balance on the bank statement is
 
Bank reconciliation statement

Q29 The differences between the balances of bank column of the cash book and bank statement could be as a result of the following except

Proficiency of the accountant

Q30 Cheques which have been issued for payment by a bank account holder but have not been presented for payment at the bank as at the date the bank prepared the bank statement are called

Unpresented cheque


Q31 Cheques deposited into the bank but have not been credited to the customer account by the bank as at the date of preparing the bank statement are called Uncredited cheque

Q32 One of the following is not a reason for dishonoured cheques:

Bank network problem

Q33 One of the following is not an advantage of bank reconciliation statement

It shows arithmetical accuracy of books of account

Q34 The principles upon which preparation of accounting records are based and which are generally accepted is

Accounting concept

Q35 A subsidiary book which can conveniently cater for recording of special transaction like revaluation of asset is

Journal proper


Q36 An important functions of accounting which shows expenses, assets, financial position at a given period of time is

Measurement


Q37 Any transaction that is recorded twice in an account through a debit and a credit entry in the same account is called

Contra entry

Q38 The money spent in an organization in order to generate income either now or in the future is

Expenditure


Q39 The cost of transporting goods meant for resale into the organization is Carriage inward

Q40 A set of numbers and codes that defines each account head and also differentiate between classes of account is

Chart of account
 
Q41 From the following information, determine the purchase day book. On October 1, the company received good worth N33,750 from Lagos Ventures. On October 13, Kaduna Warri Enterprises supplied 15 pieces of calculator at N8,330 each. 22 pairs of shoe at N6,520 per pair, 15 pieces of mobile handset at N80,950 each and another starter pack costing N1,500 were received from Victoria Island concepts limited on October 25.

N1,399,190


Q42 The book used in recording goods previously sold to customers but were later returned by the buyer to the seller is

Return inward journal


Q43 ______ is an inducement given to debtors for payment their debt promptly
Cash discount

Q44 Which of the following statement is incorrect?

Petty cash book, cash book and trail balance are also subsidiary book

Q45 Which of the following is not a method of preparing trial balance?

Equilibrium method

Q46 Which of the following statements is incorrect of trial balance:

It helps in calculating balance carried down easily

Q47 Which of the following statements is incorrect?
Trial balance is a special kind of account of accuracy

Q48 The principal book of account where the double entry principle is completed is called

Ledger


Q49 Which of the following statements is incorrect?

Double entry system states that the receiver should be credited while the giver should be debited

Q50 The only system which signifies a way of recording all accounting transactions twice in the book of account is

Double entry system

Q51 Which of the following statements is incorrect?

Discount received and discount allowed are referred to as contra entry transaction

Q52 A kind of subsidiary book of account prepare to record cash transaction, bank transaction, discount received and discount allowed is called ________

Three column cash book

Q53 Which of the following statements is incorrect?

Cash book is divided into three sides
 
Q54 The recording of cash transactions in the appropriate subsidiary book is any of the following except

Advance payment settle in cash

Q55 A book of original entry use in recording all cash transaction is

Cash book

Q56 One of the following is not an example of subsidiary book:

Trial balance

Q57 One of the books of original entry that is used to record any transaction which cannot be conveniently recorded or classified into any of the other subsidiary book is

Journal proper

Q58 All the following except one can lead to sales return

Advance payment not accomplished

Q59 One of the following is a reason why return inward may be justified Wrong specification of model or colour

Q60 The book used in recording goods previously sold to customers but were later returned by the buyer to the seller is

Return inward journal


Q61 Every business organization is expected to keep one of the following accurately and in an orderly manner.

Financial records

Q62 A subsidiary book of account used to record all goods bought and services received on credit from a third party in the order in which they occurred irrespective of the amount involved

Purchases day book


Q63 A book of original entry used to record all goods sold and services rendered on credit to a third party in the order in which they occurred irrespective of the amount involved.

Sales day book


Q64 The document that shows the transfer of goods and/or provision of service between two or more parties for which payment is yet to be received is Invoice


Q65 Which of the following statements is not true about source document

All source documents are legal tender
 
Q66 One of the following is not an example of source document

Daily attendance register

Q67 The matching concept states that
The revenue and expenses for any accounting period should be matched with each other so as to bring them into the accounting period to which relate

Q68 The concept which sees the company as a legal, separate and distinct entity is Entity concept

Q69 The principles upon which preparation of accounting records are based, which are universally acceptable is

Accounting concept

Q70 The accounting information is useful to one of the following for free flow of business transaction

Suppliers


Q71 One of the reasons why the government needs accounting information of a company is to

Determine the company income tax to be paid


Q72 The users of accounting information are the following except

Business contemporary

Q73 Assets safeguarding act is helpful to the management in the following areas except

Enhancement of productivity

Q74 Upon the preparation of analysis to explain financial statement. These analysis will show all the following except

Financial status of the employee

Q75 Which of the following is not a function of accounting as related to information system of an organization?

Entrepreneurship

Q76 The two government recognized accounting professional bodies in Nigeria are: Association of National Accountants of Nigeria and Institute of Chartered Accountant of Nigeria


Q77 Which of the following is the true or fair view of an organization???s financial statements?

The auditor report

Q78 The acquisition of key business information that includes income, expenditure, profit, assets and liabilities are made available from which of the following as prepared by accountants.
 
Financial statements

Q79 How many professional accounting bodies do we have in Nigeria?
2


Q80 Which of the following is not a nature of accounting?

Accounting as an art




1.	The following are users of accounting information except; ans- fraudsters

2.	Which of the following is not a branch of accounting? ans- Investment

3.	An inducement given to debtors for paying their debt on time is called? ans- Cash discount

4.	How many professional accounting bodies in Nigeria?
ans-2

5.	From the following, who is responsible to report on the true and fair view of an organisational financial statement?
ans- An auditor

6.	One of the following is not a subsidiary book
ans- Ledger proper

7.	All the following except one is not a current asset items. ans- Creditor

8.	Which of the following is not a nature of accounting?
ans- Accounting as an art

9.	The functions of accounting as it relates to the information system of an orgainisation includes the following except:
ans-

10.	The accounting concept in which the organisation is viewed as a legal entity separate from its owners is called?
ans-  Entity concept

11.	One of the following is not a current asset items.

Creditor

12.	Which of these is not a function of information system of an orgainisation: Relevance

13.	Who is responsible to report on the true and fair view of an organisational financial statement?

An auditor
 
14.	The concept of accounting in which the organisation is viewed as a legal entity separate from its owners is known as?

Entity concept

15.	All the following are branches of accounting except? Investment
 
1.	Who is responsible to report on the true and fair view of an organisational financial statement?

An auditor

2.
 
======
ACC203
======

1.	Given the following from T. Singhâ€™s Assets and LiabilitiesnMachinery N20 000. What is T. Singhâ€™s capital?nCash in hand N2,000nLand and buildings N200,000nBank loan N50,000nCreditors N5,000nDebtors N10,000

N55 000

--->> N177 000

N232 000

N287 000

2.	The beginning of accounting was

--->> stewardship Record keeping Book keeping all of the above
3.	Given that an item is subject to a 20% trade discount, its price is N1 000. What is the sale price?

N200

--->> N800

N1000

N1200

4.	Which of the following items are used to prepare a balance sheet?nI. The name of the firmnII. The name of the financial statementnIII. The date it is being preparednIV. The style use for the preparation of the statement

I and II

I and IV

--->> I, II and III

I, III and IV

5.	The purchase of a motor car on credit from an Automotive Company for use in a firm should be recorded as

Dr. Maintenance of vehicle expensenCr.	Automotive Company

Dr. PurchasesnCr. Automotive Company

--->> Dr. Motor vehicle Cr. Automotive Company

Dr. Motor vehicle Cr. Cash
 
6.	The Trading, Profit and Loss account is also called Balance Sheet

Cash Flow Statement

--->> Income Statement

Trial Balance

7.	The elements of the accounting equation arenI. AssetsnII. LiabilitiesnIII. Trial BalancenIV. Capital

I, II and III

--->> I, II and IV

I, III and IV

II, III and IV

8.	NOUN bought furniture on credit from FG. Which of the following journal entries will be made for this transaction in NOUN books?

Dr. FurniturenCr. Cash

Dr. FurniturenCr. NOUN

--->> Dr. Purchases Cr. NOUN

Dr. NOUNnCr. Purchases

9.	Which of the following are assets?nI. Cash and cash at banknII. Land and fixturesnIII. Loans and creditorsnIV. Mortgage loans and debtors

--->> I and II

I and III

I and IV

II	and III

10.	Which of the following concepts use the rules â€˜every transaction affects two or more ledger accountsâ€™

Going concern

--->> Double entry system

Money measurement

Periodicity
 
======
ACC203
======

1.	Which of the following books of original entry should be used to record credit sales?

--->> Sales journal

Sales returns journal

Purchases journal

Purchases returns journal

2.	One of the following is not a function of an accountant Preparation of Financial Statements

Maintenance of Books of Accounts

Interpretation of Financial Statements

--->> None of the above

3.	A debit note is a document made out when goods are returned

overcharged

sold

--->> undercharged

4.	Accountants prepare some analysis such as â€¦â€¦â€¦â€¦â€¦. from the financial statements

--->> all of the above

cash ratio

liquidity ratio

returns on investment

5.	Ufser of financial information that is interested in accounting information to determine the company income tax to be paid, compliance with government rules and regulations governing the operation of the business is

Shareholders

--->> Government

Employees

Banks

6. Essential features of a business organisation include;	i. The need to make
 
profit. Ii. There is an element of risk. Iii. Aim of continuity. Iv. There is no exchange between the parties

i, ii and iv

i, iii and iv

--->> i, ii and iii

All of the above

7.	Which of the following entries will be entered in the General journal? Sold goods on credit

Goods purchased and paid by cash

--->> Investment made by the owner

Purchase goods on credit

8.	Accounting services carried out at the local, state and federal government ministries and parastatals is

Management accounting

Cost accounting

Private sector accounting

--->> Public sector accounting

9.	Given that at the beginning of the month, a petty cashier was given N1 000 out of which she spent N800. How much will she be reimbursed?

N200

--->> N800

N1000

N1800

10.	Credit notes issued for goods returned to a supplier will be entered firstly in

the

General journal

Returns inwards journal

--->> Returns outwards journal

Petty cash journal
 
Acc203. 10/10
entity concept
accounting as an art

ledge proper
fraudster
creditor
investment
relevance
2
an auditor
cash discount
 
Acc203. 10/10
entity concept
accounting as an art

ledge proper
fraudster
creditor
investment
relevance
2
an auditor
cash discount
 
Acc203. 10/10
entity concept
accounting as an art

ledge proper
fraudster
creditor
investment
relevance
2
an auditor
cash discount
 
Acc203. 10/10
entity concept
accounting as an art

ledge proper
fraudster
creditor
investment
relevance
2
an auditor
cash discount
 
Trial balance
Sales ledger
Cross counting and recording

Norminal account
It punish fraudster
Average method
Capital expenditure
Petty cash
Building
Dr cash and cr bank
 
Trial balance
Sales ledger
Cross counting and recording

Norminal account
It punish fraudster
Average method
Capital expenditure
Petty cash
Building
Dr cash and cr bank
 
Trial balance
Sales ledger
Cross counting and recording
Norminal account
It punish fraudster
Average method
Capital expenditure
Petty cash
Building
Dr cash and cr bank



Cost Accounting
22,477,000
25,394,000
Capital=Asset-Liabilities
Capital
Decrease in both assets and liabilities

Cost Object
Error of principle
33,062,000
Cash book
 
ACC203 TMA 3

1.	Carriage inward
2.	Signed check
3.	Revenue reserve
4.	Backward method
5.	Prepayment
6.	Transposition
7.	Return inward
8.	It lack accurecy

9.	Net profit
10.	Unpresented
 
ACC203 TMA 3

1.	Carriage inward
2.	Signed check
3.	Revenue reserve
4.	Backward method
5.	Prepayment
6.	Transposition
7.	Return inward
8.	It lack accurecy

9.	Net profit
10.	Unpresented
 
FBQ1: The beginning of accounting was _______
Answer: Stewardship

FBQ2: In accounting permanent records should be created whereby both the ______and

the owner can have access to present and past events.
Answer: Steward

FBQ3: The owner of the business is referred to as an	____
Answer: entrepreneur

FBQ4: The earliest known originator of book keeping system was ................
Answer: Rev. Father Lucas Pacioli

FBQ5: Accounting consists of the process in designing and operating an efficient accounting information system for collection, recording, measuring, summarising, analysing and __________the results of financial transactions for a particular
period to users of financial information for them to make informed decisions. Answer: Communicating

FBQ6: Accounting is a discipline involved with the recording, classification and
_______of financial information for both trading and non-trading organisations.
Answer: Interpretation

FBQ7: Sales represents total of all credit and cash sales made to a ___________
Answer: Third party

FBQ8: Accounting requires the acquisition of a specialised knowledge over a given period of time which involves the combination of_________ Answer: Theory and Practice

FBQ9: Reserves are amounts set aside out of profits earned by a company and
constitute part of __________fund.
Answer: Shareholders’

FBQ10: Accounting is a ________because is a means of communicating business
information.
Answer: Language

FBQ11: Accounting does not have ________ products that can be bought and sold like

the manufacturing companies.
Answer: Physical

FBQ12: Accounting is a _________because it follows a systematic and organised body

of knowledge.
Answer: Science

FBQ13: Accounting is a ________because it is also based on some fundamental
principles which are applicable worldwide.
Answer: Management science

FBQ14: The maintenance and recording of the books of accounts in a _____manner
similar to procedures in a laboratory make accounting a science.
Answer: Systematic

FBQ15: Accounting should include enough facts and _____to satisfy the need of the
users.
Answer: Figures

FBQ16: Ability to trace all accounting transactions in a report to the source
 
documents is important for ________to be realised.
Answer: Objectivity

FBQ17: Bank reconciliation is the process of making the balance on the bank column of a cash book to _____with the balance on the bank statement received from the bank.

Answer: Agree

FBQ18: Accounting report should be prepared in a way that allows for quick and easy

________from one period to another.
Answer: Comparability

FBQ19: Accounting report is _______ if it is easy to change, adjust and adaptable
to suit different kinds of users.
Answer: Flexible

FBQ20: Financial accounting is also used to determine the _________of an
organisation which shows the company’s assets and liabilities at a particular date. Answer: Financial position

FBQ21: Cost accounting helps organisation in controlling and _______their costs.
Answer: Minimising

FBQ22: Management accounting is a branch of accounting that uses different
_______analysis tools to project for the future of an organisation.
Answer: Quantitative

FBQ23: Auditing is an ______examination of the books of accounts, records and
financial statement of an organisation by an independent person called an auditor. Answer: Independent

FBQ24: Without the accountants, financial statements will not make any ______to
many people.
Answer: Meaning

FBQ25: The external auditing service provided by ________is to ensure that complete

and reliable financial statements are published or released to the public. Answer: Accountants

FBQ26: Every business organisation is expected to keep its __________accurately and

in an orderly manner.
Answer: Financial records

FBQ27: Accounting is used to ________the financial performance of an organisation
Answer: Measure

FBQ28: Accounting makes use of _______financial data in forecasting future
performance and financial position of different organisations.
Answer: Historic

FBQ29: Shareholders are the _______of a company and they are interested in the
performance of the company
Answer: Owners

FBQ30: The government is interested in accounting information to determine the company income tax to be paid, _______with government rules and regulations governing the operation of the business.

Answer: Compliance
 
FBQ31: The concern of the suppliers is to know how stable the company is ______in
order to meet their bills and invoices as at when due.
Answer: Financially

FBQ32: The laid down rules that are complied with in the preparation of accounting
records for any organisation is _______
Answer: Accounting concept

FBQ33: The tradition for the preparation of accounting records is __________
Answer: Accounting convention

FBQ34: In recording the books of accounts, the business records are kept and treated_______from the owners even in a situation where the business is owned by a person.

Answer: Share

FBQ35: In accounting revenues and expenses for any accounting period should be
________with each other so as to bring them into the accounting period to which
they relate, so that the profit or loss for the period can be ascertained. Answer: Matched

FBQ36: The convention of prudence states that profit should not be ______when
recognising profit to be recorded in financial statement, but the profit should be based on actual profit earned or realised for the particular period. Answer: Anticipated

FBQ37: A cheque is a _______instrument that originates from banks and it is used to

withdraw money from a stated bank account in a bank.
Answer: Negotiable

FBQ38: A bank teller is used to ________money (cash and cheques) into an account in

a	bank. Answer: Pay

FBQ39: Credit note is a document showing a ______in favour of the receiver.
Answer: Claim

FBQ40: Discount can be defined as an _______given to customers to enable them buy
in large quantity, obtain profit margin price Answer: Inducement

FBQ41: Quantity discount is a price ______given to a customer who buys in large
quantity for consumption and not for re-sale.
Answer: Reduction

FBQ42: Purchases day book is a subsidiary book of account used to record all goods bought and services received on _______from a third party in the order in which they occurred irrespective of the amount involved.

Answer: Credit

FBQ43: Journal or journal proper is one of the books of original entry that is used to record any transaction which cannot be ________recorded or classified into any of the other subsidiary books.

Answer: Conveniently

FBQ44: The cash book is a book of original entry used to record all
_____transactions.
Answer: Cash
 
FBQ45: A contra entry is any transaction that has been recorded ______in an account

through a debit and a credit entry in the same account.
Answer: Twice

FBQ46: The double entry principle states that for every debit entry for a transaction, there must be a corresponding ________for the same transaction. Answer: Credit entry

FBQ47: Ledger is the ______of accounts where the double entry principle is
completed.
Answer: Principal book

FBQ48: Error is an accounting terminology used to signify ______made while
recording and/or posting financial transactions.
Answer: Mistakes

FBQ49: Expenditures are the money spent in an organisation in order to generate
_______either now or in the future.
Answer: Income

FBQ50: The manual accounting system refers to the keeping of accounting record by
__________of relevant posting in the books of accounts.
Answer: Handwritten

MCQ1: The accounting report should be ...........enough to give the user full
information with which decision could be reached.
Answer: Complete

MCQ2: Good accounting information should be ...........to the purpose for which it
is prepared.
Answer: relevant

MCQ3: The owner of a business is referred to as __________
Answer: an entrepreneur

MCQ4: Financial accounting is prepared on ___________
Answer: Historical basis

MCQ5: Financial accounting is also used to determine the ..........of an
organisation
Answer: Financial position

MCQ6: Accounting as a form of knowledge and profession consist of different
branches except...................
Answer: Commerce

MCQ7: To find out the cost of goods produced or services rendered in an
organisation we need...............
Answer: Cost accounting

MCQ8: The acquisition of key business information that includes income, expenditure, profit, assets and liabilities are made available from ____________ prepared by accountants.

Answer: Financial Statement

MCQ9: In business, __________ refers to the process of allocating funds to meet the

needs of your business.
Answer: Finance
 
MCQ10: The sole proprietorship business	is also referred to as a __________
Answer: One-man- business

MCQ11: Which of the following is not a nature of accounting?
Answer: Auditing

MCQ12: Utility is the satisfaction derived from consuming a particular product or accepting a service.

Answer: Economist’s point of view

MCQ13: For financial statements to make meaning to many people, one of the following must be prepared by an accountant. Answer: Accounting ratio


MCQ14: To investigate the adequacy of tax paid by organisations, government engages

the services of..........
Answer: Accountant

MCQ15: To safeguard the assets of an organisation, an Accountant employs one of the following.............

Account Details

Bank Name: --

Account Name: --

Account No: --

Name*

Email*

Payment screenshot (Proof)

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After payment, upload the evidence and wait for 5 seconds and Submit
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Answer: Internal control system

MCQ16: The two government recognised accounting professional bodies in Nigeria are: Answer: Association of National Accountants of Nigeria and Institute of Chartered Accountants of Nigeria

MCQ17: One of the following is not a direct user of accounting information
Answer: Supplier

MCQ18: Business documents that confirm the occurrence of financial transaction between two or more parties are called....... Answer: Source documents

MCQ19: The total of goods returned to supplier from the purchases returns day book is transferred to the ............of the returns outwards account. Answer: Credit side

MCQ20: The following except ____________ are recorded in the Journal Proper&nbsp;
Answer: Recording of credit sales

MCQ21: The left side of a cash book is called_____________________
Answer: Debit side

MCQ22: When cash is withdrawn from the bank to the office ________________
Answer: Credit - The bank column.

MCQ23: Contra entry can be found in___________
Answer: Two column cash book

MCQ24: When liabilities value reduces, the liabilities account should
be___________.
Answer: Debited

MCQ25: The advantages of trial balance exclude one of the following_______.
Answer: It helps in preventing errors.

MCQ26: One of the following errors does not affect the agreement of trial balance
Answer: Errors of principle
 
MCQ27: A debtor paid N10, 500 cash but his account was credited with N10,000 while

the cash book was debited with N10,500.
Answer: Credit - Debtors Account N500

MCQ28: Motor vehicle purchases of N660,000 was entered in the purchases account.
Correct the errors.
Answer: Credit -Purchases account

MCQ29: The cost of transporting goods meant for resale into the organisation is called___

Answer: Carriage Inward

MCQ30: Assets that add value to the organisation but they cannot be seen by their
nature are called_________
Answer: Intangible assets

MCQ31: Services and goods that have been consumed or enjoyed during the year but
which payment has not been made either in full or in part at the end of that
financial year is called_________
Answer: Accruals

MCQ32: Reserve which is distributed to the shareholder and other capital providers in form of debenture interest, retained profit is called ________ Answer: Revenue Reserve

MCQ33: Any transactions that will increase the customers’ indebtedness to the organisation are .........to the debtors control account Answer: Debited


MCQ34: A statement sent periodically usually once a month by a buyer to his
suppliers is called____________
Answer: Creditor’s Statement of Account

MCQ35: The causes of the differences between the bank statement and the cash book exclude one of the following____________________ Answer: Signed cheques


MCQ36: To prepare Bank reconciliation statement start with Balance as per adjusted

cash book and add_______
Answer: Unpresented cheques

MCQ37: The accounting concept that assumes that the business will be in existence for a very long period of time without any intention to close the company later is___

Answer: Going Concern Concept

MCQ38: The traditions and customs adopted by accountants for the preparation of financial statements exclude one of the following Answer: Money Measurement


MCQ39: A document that is used to record full details of money paid for a particular purpose is called______________ Answer: Payment Voucher


MCQ40: One of the following is not a subsidiary book of account_______
Answer: Ledger account

MCQ41: Where an account of capital expenditure is treated as revenue expenditure item it is called_______________
 
Answer: Errors of Principle

MCQ42: Cash of N600,000 received from a debtor was recorded in the cash book only.
You are to correct the error.
Answer: Debit - Suspense Account N600,000

MCQ43: One of the following is not a branch of accounting.
Answer: Investigative accounting

MCQ44: The accounting system that recognises revenue from selling a good or service in the period which the good is sold or the service is performed is called_________ Answer: Accrual based accounting

MCQ45: The revenues that are generated outside the sales of goods or services that
the firm regularly deals with are called
Answer: Discount received

MCQ46: Essential features of a business organisation exclude one of the following
Answer: The need to take risk

MCQ47: The functions of an accountant exclude one of the following.
Answer: Stock brokering

MCQ48: The professional person that reports on the true and fair view of an organisation’s financial statements is Answer: Auditor


MCQ49: An inducement given to debtors (credit customers) for paying their debt on time or promptly within the specified time frame or period is known as Answer: Cash Discount

MCQ50: A book used to record goods previously sold to customers but were later returned by the buyer to the seller is known as__________ Answer: Returns Inwards Journal
 
======
ACC203
======

1. All the following except one is not a current asset items.

Cash

Bank

--->> Creditor

Debtor

2.	The accounting concept in which the organisation is viewed as a legal entity separate from its owners is called?





--->> Entity concept

Matching concept

3.	From the following, who is responsible to report on the true and fair view of an organisational financial statement?





--->> An auditor

Public users

4. Which of the following is not a nature of accounting?

Accounting as a profession



--->> Accounting as an art

Accounting as a science

5. One of the following is not a subsidiary book.

Sales day book





--->> Ledger proper

6.	Which of the following is not a branch of accounting? Auditing
 
--->> Investment

Financial accounting

Managerial accounting

7.	The following are users of accounting information except; Shareholders

--->> fraudsters

Investors

8. How many professional accounting bodies in Nigeria?

3

--->> 2

4

5

9.	An inducement given to debtors for paying their debt on time is called? Quantity discount

Discount



--->> Cash discount

10.	The functions of accounting as it relates to the information system of an orgainisation includes the following except:

--->> Relevance

Measurement

Decision making

Forecasting
 
======
ACC203
======

1. One of the following is not a subsidiary book.

Sales day book

Return inward

Journal proper

--->> Ledger proper

2.	The accounting concept in which the organisation is viewed as a legal entity separate from its owners is called?





--->> Entity concept

Matching concept

3.	The following are users of accounting information except; Shareholders

--->> fraudsters

Investors

4.	All the following except one is not a current asset items. Cash






5.	An inducement given to debtors for paying their debt on time is called? Quantity discount

Discount Trade discount
--->> Cash discount

6.	Which of the following is not a branch of accounting? Auditing
 
--->> Investment

Financial accounting

Managerial accounting

7.	Which of the following is not a nature of accounting? Accounting as a profession

Accounting as a language

--->> Accounting as an art

Accounting as a science

8.	From the following, who is responsible to report on the true and fair view of an organisational financial statement?





--->> An auditor

Public users

9.	The functions of accounting as it relates to the information system of an orgainisation includes the following except:

--->> Relevance

Measurement

Decision making

Forecasting

10.	How many professional accounting bodies in Nigeria? 3

--->> 2

4

5




One of these errors can affect the balancing of trial balance.

Transposition


The correction of the errors committed will necessitate the use of

a suspense account


One of the following is not a method of preparing trial balance.
Question 3Select one:

a.
Average method


Errors can occur as a result of all of the following except
Question 4Select one:

a.
books is incorrect


Which of the following is not a nature of accounting?

Accounting as an art

The main purpose why profit and loss account is prepared is to determine

Net profit


When cash is withdrawn from the bank for office use,how is the transaction effected?
Question 7Select one:

a.
Dr cash and Cr bank



Two of the subsidiary books of accounts used to record cash and bank transactions excluding discounts are;

cash book and the two column cash book


All but one of the following is not the benefit of trial balance.

It punishes fraudsters



The accounts that take records of income and expenditure of the business is called?

Norminal account


One of the following is not an advantage of computerised accounting;

Some softwares require the service of external consultants who have to be paid consultancy fee on annual basis in some cases




Accounting information should be free from thoughts and feelings of the person preparing the report. This an essentials of accounting known as;

Objectivity


The branch of accounting that uses quantitative analysis tools to project for the future of an organisation is called;

Management accounting


The following are the essential features of a business organisation except;

No business for infant organisations

These are services and goods that have been consumed or enjoyed during the year but which payment has not been made either in full on in part at the end of that financial year is called;
Question 5Select one:

a.
Accruals

Another name for control accounts is;

Total account,

Auditing is a branch of accounting because;

the role of an auditor is performed by accounting professionals who chooses to be an auditor instead of financial accountant, cost accountant or management accountant.




Where sales invoice total of N55,000 is mistakenly calculated to be N45,000. The same N45,000 will be credited to sales account and N45,000 debited to the customers account. The error committed is called;
Question 8Select one:

a.
Original entry


One of the following is not an indirect user of an accounting information;

Manager


This is a set of numbers and codes that define each account head and also differentiate between classes of accounts

Chart of account



The transaction involving bank and cash is called;
Question 5Select one:

Contra entry



_________ reports on the true and fair view of an organisations financial statements.

The Auditor




A book used to record goods previously sold to customers but were later returned by the buyer to the seller either in whole or in part is called;
Question 10Select one:

a.
returns inwards day book or sales return book;


These are cost of goods (other than those related to goods to be sold) and services consumed or used during the period covered by the account, and such goods and services are meant for the business

Expenses



Such companys tangible assets that are expected to be used in, and for the organisation for many years is called;
Question 5Select one:

a.
Non-current assets


Revaluation reserve is an example;

Capital Reserves



An amounts set aside out of profit earned by a company and constitute part of shareholders fund is known as;
Question 7Select one:

a.
Reserves




Accounting requires the acquisition of a specialised knowledge over a given period of time which involves the combination of theory and practice. This is the nature of accounting called;

Profession




An accounting concept that says a business will never cease but continue to exist is called;

Going concern



The book of original entry for recording accounting transactions that cannot be posted to other books of prime entries is called;

Journal



One of the following statement is not true of trial balance

Trial balance is prepared directly from journal entries


A source document that is used to correct overcharge on an invoice, allowance for minor damages to goods, and refund on goods returned is called;

Credit note



A sale on credit of N45,300 to a customer Mr. Y. Adeyemi posted to the account of Mr. X. Adeyeni. This is an error of;

Comission


Expenditure can be classified into two namely

capital expenditure and revenue expenditure


Cash book

single column cash book



A debit note is a source document that is used when a customers account is to be increased, and to establish costs against the recipient

Debit note




Transactions that are recorded in the journal include all of the following except;

Trade analysis



The process of transferring from the day books to the ledger is called;

Posting


Such auditing carried out to meet stated laws and regulations is called;

statutory audit




There are two major types of control accounts namely;

Purchases ledger control and Sales ledger control



In accounting, such documents that buyers and sellers exchanged between each other which are binding on both parties are called;

Source documents



Such cheques deposited into the bank, but which have not been credited to the customers account by the bank as at the date of preparing the bank statement. This

Uncredited cheques


A negotiable instrument that originates from banks and is use to withdraw money from a stated bank account in a bank is called;

Cheque




One of the following is a branch of accounting

Management accounting



Errors in accounting are classified into two, namely;

Those that affect the agreement of trial balance and those that do not affect the agreement of trial balance.


The double entry principle states that;

for every debit entry for a transaction, there must be a corresponding credit entry for the same transaction, and


Properties that are permanently retained in the business to earn income with a life span of more than one year are called;

Capital expenditure



A source document that serves as an evidence of cash and cheque transactions is called;
.
Bank teller




When cash is removed from the office and paid into the bank, which entry should be made;

Debit the bank column and Credit the cash column


The value of stock of goods meant for sale that are available with the business at the beginning of the accounting year or period is called;

Opening stock



The sales day book or sales journal is not an account because;

it does not have a debit or credit side, and neither can cash sales nor other cash and bank transactions be recorded in it.





When cash is removed from the office and paid into the bank, the effect will be that;

There will be an increase of money in the bank while the cash in the office will reduce



The issued cheque that has not been paid by the bank is known as?

Unpresented


The discount available for buying goods on credit at the point of purchase is called;

Trade discount


The accounts that contains properties and other possessions of the company which can be seen and touched is called;

Real account



One of the following error is a two sided error;

Error of principle


Another name for managerial accounting is called;

Cost accounting



The accounting records do not show if a company has a good or bad management team or if the owner is ill or healthy. However, any thing that could be quantified in monetary terms like payment of salaries of N25,000 will be recorded in the books of accounts.This is an instance of one of the accounting concept called;

Money Measurement Concept



The users of accounting information that uses financial statement to compare their remuneration in total with other comparable companies in the same industry are called\'

Employees



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Introduction to Financial Accounting I (ACC203_232)

There are two major types of control accounts namely;

Purchases ledger control and Sales ledger control

A temporary account opened to record errors that cause the trial balance total not to agree pending the time the errors are corrected is called;

Suspense account

Which of the following is a source document;

payment vouchers

Accounting is a science because

it follows a systematic and organised body of knowledge

Goods previously sold to customers but were later returned either in whole or in part is called;

Returns Inwards

Another name for control accounts is;

Total account,

Where sales invoice total of N55,000 is mistakenly calculated to be N45,000. The same N45,000 will be credited to sales account and N45,000 debited to the customers account. The error committed is called;

Original entry

The process of making the balance on the bank column of a cash book to agree with the balance on the bank statement received from the bank is referred to as;

Bank reconciliation statement

One of the following is a nature of accounting;

Accounting as an information system

The profit realised on trading activities alone without other expenses incurred in the business is called;

Gross ProfitIntroduction to Financial Accounting I (ACC203_232)

Where an account of capital expenditure is treated as revenue expenditure item or an item of revenue expenditure is treated as capital expenditure in the account, the error committed is known as;

Principle

Auditing is a branch of accounting because;

the role of an auditor is performed by accounting professionals who chooses to be an auditor instead of financial accountant, cost accountant or management accountant.

An accounting services carried out at the local, state and federal government ministries and parastatals is called;

Public sector accounting

When determining the profit of a business for a particular period, information to be used should not be restricted to income and expenditure that have been paid for or received, but should be extended to those revenue and expenditure that have not been received or paid for, but for which the service has been enjoyed or rendered during the period. This concept is called;

Accrual concept

The cost of transporting goods meant for resale into the organisation is known as;

Carriage inward

The following are the essential features of a business organisation except;

No business for infant organisations

These are cost of goods (other than those related to goods to be sold) and services consumed or used during the period covered by the account, and such goods and services are meant for the business

Expenses

From economist point of view, the satisfaction derived from consuming a particular product or accepting a service is called;

Utility

One of the following is a direct user of an accounting information;

Shareholders

An accountant does not count eggs but chicks; this accounting concept is called;

Realization conceptIntroduction to Financial Accounting I (ACC203_232)

Profit and loss account is prepared in order to determine;

Net profit

The user of an accounting information that is intersted in the liquidity position of a company is called;

Loan providers

One of the source document used to effect correction when a customer or purchaser has been undercharged for goods or services is known as;

Debit note

The concept that says revenues should be recognise immediately it is earned while expenses are recognised when they are incurred, but not when the money is received or paid is called;

Accrual concept

A regular activity between two or more parties which leads to the creation of utility that satisfies human wants in form of goods and services is called;

Business

A source document that serves as an evidence of cash and cheque transactions is called;

Invoice

Properties that are permanently retained in the business to earn income with a life span of more than one year are called;

Capital expenditure

ICAN stands for;

Institute of Chartered Accountants of Nigeria

Subsidiary books are also called;

books of prime entries or books of original entries.

The double entry principle states that;

for every debit entry for a transaction, there must be a corresponding credit entry for the same transaction, and for every credit entry for a transaction, there must be a corresponding debit entry for the same transactionIntroduction to Financial Accounting I (ACC203_232)

Such financial obligations against the company that are not due for repayment within one year is called;

Non-current liabilities

One of the following is not an advantage of computerised accounting;

One of the following is not an advantage of computerised accounting;

Some softwares require the service of external consultants who have to be paid consultancy fee on annual basis in some cases

The name of the person that inspect the financial records of an organisation and issues opinion is called;

Auditor

One of the following is an accounting professional body in nigeria;

Association of National Accountants of Nigeria

An amounts set aside out of profit earned by a company and constitute part of shareholders fund is known as;

Reserves

Such cheques deposited into the bank, but which have not been credited to the customers account by the bank as at the date of preparing the bank statement. This

Uncredited cheques

Such expenditure incurred to cover a long period of time as a result of which some portions are capitalised or deferred pending the time it is written off against the profit for subsequent years is called;

Fictitious assets

Auditing is an independent examination of the books of accounts, records and financial statement of an organisation by an independent person called

Ac auditor

An error that does not require any journal entry for rectification, but a physical correction of wrong figures or an opposite entry in the same account is called;

One sided error

These are services and goods that have been consumed or enjoyed during the year but which payment has not been made either in full on in part at the end of that financial year is called;

AccrualsIntroduction to Financial Accounting I (ACC203_232)
9/10
One of the following is not a current asset items.

Creditor

The process of transferring from the day books to the ledger is called;

Posting

Transactions that are recorded in the journal include all of the following except;

Trade analysis

One of these is not a reason why cheque may be dishonoured;

Signed cheque

Impersonal account is sub divided into two. These are;

Nominal account and real account

All of the following are users of accounting information except;

The two government recognised accounting professional bodies in Nigeria are:

Association of National Accountants of Nigeria and Institute of Chartered Accountants of Nigeria

A very good example of capital expenditure is..

Building

One of the following is an example of real account;

Motor vehicle account

A debit note is a source document that is used when a customers account is to be increased, and to establish costs against the recipient

Debit noteIntroduction to Financial Accounting I (ACC203_232)

The cash provided for the petty cashier for starting is called?

Petty cash

The retuned goods by customers either in whole or in part is called?

Return inward

An inducement given to debtors for paying their debt on time is called?

Cash discount

When cash is withdrawn from the bank to the office, the accounting entries shall be;

Debit - The cash column and Credit - The bank column

A book used to record goods previously sold to customers but were later returned by the buyer to the seller either in whole or in part is called;

returns inwards day book or sales return book;

Which of these is not a function of information system of an orgainisation:

Relevance

Two of the subsidiary books of accounts used to record cash and bank transactions excluding discounts are;

cash book and the two column cash book

The accounts that contains properties and other possessions of the company which can be seen and touched is called;

Real account

One of the following is not a current asset items.

Creditor

All but one of the following is not the benefit of trial balance.

It punishes fraudstersIntroduction to Financial Accounting I (ACC203_232)
9/10
One of the following is not a current asset items.

Creditor

The process of transferring from the day books to the ledger is called;

Posting

Transactions that are recorded in the journal include all of the following except;

Trade analysis

One of these is not a reason why cheque may be dishonoured;

Signed cheque

Impersonal account is sub divided into two. These are;

Nominal account and real account

All of the following are users of accounting information except;

The two government recognised accounting professional bodies in Nigeria are:

Association of National Accountants of Nigeria and Institute of Chartered Accountants of Nigeria

A very good example of capital expenditure is..

Building

One of the following is an example of real account;

Motor vehicle account

A debit note is a source document that is used when a customers account is to be increased, and to establish costs against the recipient

Debit noteIntroduction to Financial Accounting I (ACC203_232)

The cash provided for the petty cashier for starting is called?

Petty cash

The retuned goods by customers either in whole or in part is called?

Return inward

An inducement given to debtors for paying their debt on time is called?

Cash discount

When cash is withdrawn from the bank to the office, the accounting entries shall be;

Debit - The cash column and Credit - The bank column

A book used to record goods previously sold to customers but were later returned by the buyer to the seller either in whole or in part is called;

returns inwards day book or sales return book;

Which of these is not a function of information system of an orgainisation:

Relevance

Two of the subsidiary books of accounts used to record cash and bank transactions excluding discounts are;

cash book and the two column cash book

The accounts that contains properties and other possessions of the company which can be seen and touched is called;

Real account

One of the following is not a current asset items.

Creditor

All but one of the following is not the benefit of trial balance.

It punishes fraudstersIntroduction to Financial Accounting I (ACC203_232)

The main purpose why profit and loss account is prepared is to determine;

Net profit

When transactions take place, first they are recorded in;

Journal

The page of the source document from where the posting originate or a page in the day book or cash book is called;

Folio

The accounts of persons and organisations that the company transacts business with is called;

Personal account

A book used to record goods previously sold to customers but were later returned by the buyer to the seller either in whole or in part is called;

returns inwards day book or sales return book;

_________ reports on the true and fair view of an organisations financial statements.

The Auditor

All the following are branches of accounting except?

Investment

The two government recognised accounting professional bodies in Nigeria are:

Association of National Accountants of Nigeria and Institute of Chartered Accountants of Nigeria

Which among the following is not a cause of errors in accounting.

Cross counting and recording

The retuned goods by customers either in whole or in part is called?

Return inward

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INTRODUCTION TO FINANCIAL ACCOUNTING I

ACC203

Course Guide

Course Developer/Writer: Dr Onafowokan OLUYOMBO (FCA,

ACTI, AMNIM)

Department of Accounting

Pan Atlantic University, Lagos

Course Editor:

Dr Chijioke Mgbame

Department of Accounting

University of Benin

Head of Department:

Dr.Ofe Inua

Department of Financial Studies

National Open University of Nigeria

Programme Coordinator:

Anthony I. Ehiagwina Department of Financial Studies National Open University of Nigeria

1

CONTENT

Introduction

Course Aim

Course Objectives

Study Units

Assignments

Tutor Marked Assignment

Final Examination and Grading

Summary

2

INTRODUCTION

What you have in your hand is the course guide for ACC203 (Introduction to Financial Accounting 1). The purpose of the course guide is to relate to you the basic structure of the course material you are expected to study as a B.Sc. Accounting Student in National Open University of Nigeria. Like the name ‘course guide’ implies, it is to guide you on what to expect from the course material and at the end of studying the course material.

COURSE CONTENT

The course content consists basically of the treatment of accounting transactions according to the provisions of relevant accounting standards. Specifically, the nature and scope of accounting, the functions of accountants in business organisations, the accounting function and its relationship with the information system of organizations, users and uses of accounting information, basic accounting concepts and conventions, source documents and subsidiary books, double entry book-keeping systems, trial balance, correction of errors, capital and revenue expenditures, final accounts of a sole trader, control accounts and bank reconciliations were the main focus of this course material.

COURSE AIM

The aim of the course is to introduce you to basic principles of accounting and to understand how financial documents are posted into accounting record in order to determine the profit or loss of an organisation. It also includes practical treatment of accounting transactions conducted through the bank and how errors in accounting are treated.

COURSE OBJECTIVES

At the end of studying the course material, among other objectives, you should be able to:

1. Explain the source documents used in posting accounting records;

2. Explain and prepare books of original entries;

3. Understand the double entry book-keeping systems.

4. Explain the concept of revenue and capital expenditures, and how they are classified.

5. Prepare the statement of profit or loss of a sole trader.

6. Explain types of errors and how they are corrected.

7. Prepare the statement of financial position of a sole trader.

8. Explain and prepare bank reconciliation statement.

3

COURSE MATERIAL

The course material package is composed of:

The Course Guide

The Study Units

Self-Assessment Exercises

Tutor Marked Assignment

References/Further Reading

THE STUDY UNITS

The study units are as listed below:

Unit 1 Unit 2 Unit 3 Unit 4 Unit 5 Unit 6 Unit 7 Unit 8 Unit 9 Unit 10 Unit 11 Unit 12 Unit 13 Unit 14 Unit 15 Unit 16 Unit 17 Unit 18 Unit 19 Unit 20 Unit 21

The Nature and Scope of Accounting

The Functions of Accountants in Business Organisations.

The Accounting Function and its Relationship with the Information System of

Organizations.

Users and Uses of Accounting Information

Basic Accounting Concepts and Conventions

Source Documents and Subsidiary Books: Sales Day Book

Subsidiary Books: Purchases Day Book

Subsidiary Books: Returns Inwards and Outwards Day Book

Subsidiary Book: Journal

Subsidiary Books: Single and Two Column Cash Book

Subsidiary Books: Three Column and Petty Cash Book

Double Entry Book-keeping Systems

Trial Balance

Types and Correction of Errors

Classification of Expenditure between Capital and Revenue

Methods of Recording Accounting Data: Manual and Mechanical

Final Accounts of a Sole Trader 1. Statement of Profit or Loss

Final Accounts of a Sole Trader 2. Statement of Financial Position

End of Year Adjustments in Final Accounts, e.g. Prepayment, Accruals,

Provisions and Reserves etc.

Accounting Treatment of Control Accounts

Bank Reconciliations

4

ASSIGNMENTS

Each unit of the course has a self assessment exercise. You will be expected to attempt them as this will enable you understand the content of the unit.

TUTOR MARKED ASSIGNMENT

The Tutor Marked Assignments (TMAs) at the end of each unit are designed to test your understanding and application of the concepts learned. Besides the preparatory TMAs in the course material to test what has been learnt, it is important that you know that at the end of the course, you must have done your examinable TMAs as they fall due, which are marked electronically. They make up to 30 percent of the total score for the course.

SUMMARY

It is important you know that this course material consists of both academic and professional materials. This provides you the opportunity of obtaining a BSc. degree in Accounting and preparation for your professional examinations. Therefore, it is very important that you commit adequate effort to the study of the course material for maximum benefit.

5

INTRODUCTION TO FINANCIAL ACCOUNTING I

ACC203

Main Content

Course Developer/Writer: Dr Onafowokan OLUYOMBO (FCA,

ACTI, AMNIM)

Department of Accounting

Pan Atlantic University, Lagos

Course Editor:

Dr Chijioke Mgbame

Department of Accounting

University of Benin

Head of Department:

Dr.Ofe Inua

Department of Financial Studies

National Open University of Nigeria

Programme Coordinator:

Anthony I. Ehiagwina Department of Financial Studies National Open University of Nigeria

6

UNIT 1: THE NATURE AND SCOPE OF ACCOUNTING

CONTENTS

1.0 Introduction

2.0 Objectives

3.0 Main Content

3.1 Accounting Defined

3.2 Nature of Accounting

3.3 Qualities of Good Accounting Information

3.4 Branches of Accounting

4.0 Conclusion

5.0 Summary

6.0 Tutor-Marked Assignment

7.0 References/Further Readings

1.0 INTRODUCTION

Like any other discipline or course, accounting did not evolve suddenly, but the beginning of accounting was stewardship, where a person is employed in someone else’s property and the employee is expected to give a report of his activities to the employer from one period to the other because it is required in stewards that a man be found faithful.

Basically, stewards are to give report or account, but not yet satisfied with just giving report, a system was developed later to incorporate the keeping of these records from one period to another in a form and manner that is easy to understand, which is called book keeping. This means that some forms of permanent records should be created whereby both the steward and the owner can have access to present and past events.

The earliest known originator of book keeping system was Rev. Father Lucas Pacioli, a clergyman and mathematician and it was stated in his book “Summa de Arithmeticl, Geometria, Proportioi et Proportionalita” (Everything about Arithmetic, Geometry and Proportion) published in 1494 at Venice.

2.0 OBJECTIVES

At the end of this unit, you should be able to:

i. Define accounting

ii. Explain nature of accounting

iii. Discuss the qualities of a good accounting information

iv. Understand the branches of accounting and their scope

7

3.0 MAIN CONTENT

3.1 ACCOUNTING DEFINED

Accounting consists of the process in designing and operating an efficient accounting information system for collection, recording, measuring, summarising, analysing and communicating the results of financial transactions for a particular period to users of financial information for them to make informed decisions.

Accounting is a discipline involved with the recording, classification and interpretation of financial information for both trading and non-trading organisations about the economic activities of an organisation so that accurate decisions can be made based on the accounting information provided.

Accounting can be defined as the process of collecting, recording, presenting, analysing and interpreting financial information for the users of financial statements. It involves accurate book-keeping, records, measuring and interpreting the financial results of the business by the preparation of accounting ratios and communicating these results to management and other interested parties or users.

3.2 NATURE OF ACCOUNTING

Accounting possesses different nature when examined thoroughly. These natures are discussed below.

3.2.1 Accounting as a Profession

A profession is a known career that requires an identified path for the acquisition of specialised and/or formal education or training before rendering any service. Accounting falls into this definition of a profession because it requires the acquisition of a specialised knowledge over a given period of time which involves the combination of theory and practice. Accounting is a body of knowledge that was developed with the advent of formal trade many centuries ago. Accounting as a profession enables people to make a career in accounting at different levels.

Accounting as a profession in Nigeria has grown considerably with formal educational training by tertiary and professional institutions. In addition to other recognised international accounting professional bodies, the professional accounting bodies in Nigeria are the Institute of Chartered Accountants of Nigeria (ICAN) and Association of National Accountants of Nigeria (ANAN).

3.2.2 Accounting as a Language

Language is a means of communication. Accounting is a language because is a means of communicating business information.

8

Accounting is usually referred to as the language of business because it is used in reporting and communicating financial information about organisations. Language makes use of rules and symbols, likewise, accounting has its own rules (e.g. debit the receiver, credit the giver) and symbols (e.g. Dr, Cr) that must be strictly adhere to. Furthermore as language is learned overtime, accounting also require learning and practice in order to communicate financial information to different users of the information.

3.2.3 Accounting as an Information System

The acquisition of key business information that includes income, expenditure, profit, assets and liabilities are made available from financial statement prepared by accountants. Tangible business information is not possible without accounting because the raw data from different source documents (discussed in chapter 7) do not make any meaning until its processed and analysed through accounting process with the end result being a reliable information system

that are dependable for decision making process.

3.2.4 Accounting as a Service Activity

Accounting does not have physical products that can be bought and sold like the manufacturing companies. However, accounting is a service centre that provides auxiliary services to different types of organisations. Accounting produces information that individuals and organisations can use to create wealth. Although accounting provides services, the effect of the service cut across all the sector of an economy for both private and government organisations.

3.2.5 Accounting as a Science

Accounting is a science because it follows a systematic and organised body of knowledge. Though accounting is not a pure science like Chemistry and Physics, Accounting is a management science because it is also based on some fundamental principles which are applicable worldwide. One of the accounting principles is the double entry system, which means that all accounting transactions have two parts to them (i.e. debit and credit).

The maintenance and recording of the books of accounts in a systematic manner similar to procedures in a laboratory make accounting a science. Furthermore, the award of Bachelor of Science (B.Sc) degree to accounting graduates in Nigeria universities and other universities in different nations is an affirmation that accounting is a science.

3.3 QUALITIES OF GOOD ACCOUNTING INFORMATION

The release of accounting information is not a guarantee that such report is correct. There are basic tests to which any accounting report could be subjected. These tests are the qualities expected to be displayed in any good accounting information, and these are:

3.3.1 Relevance

Good accounting information should be relevant to the purpose for which it is prepared. It should include enough facts and figures to satisfy the need of the users. Without this, the information is like an ordinary plain piece of paper.

9

3.3.2 Objectivity

Accounting information should be free from thoughts and feelings of the person preparing the report. Ability to trace all accounting transactions in a report to the source documents is important for objectivity to be realised. Objectivity also require that bias and window dressing should not be introduced and the information provided must comply with relevant principles and regulations governing the preparation of financial statements.

3.3.3 Completeness

The report should be complete enough to give the user full information with which decision could be reached. Enough information or details for good understanding of the user is important for accounting information to be complete.

3.3.4 Timeliness

Accounting information should be on time. It should be ready as at when needed. If not, it will be a useless effort preparing the report. The accounting information requires by company’s management on daily, weekly or monthly basis for effective running of the organisation must be provided as at that period. If it comes late it would be useless.

3.3.5 Comparable

Comparing accounting report for one period to another should be possible with ease. It means that the report should be prepared in a way that allows for quick and easy comparability from one period to another. It means that the basis for the preparation of the accounting information from period to period must not change. If for any reason a change occurs, it must be clearly stated with the effect of such change.

3.3.6 Clarity

The information provided should be clear enough for the user to understand to the extent that the user will not need a third party to interpret it to him.

3.3.7 Accuracy

The report should be exactly right and free from all forms of errors, mistakes, and omissions.

3.3.8 Flexible

Flexibility means that accounting reports should be easy to change, adjust and adaptable to suit different kinds of users.

3.4 BRANCHES OF ACCOUNTING

Accounting as a form of knowledge and profession consist of different branches as explained below.

3.4.1 Financial Accounting

10

Financial accounting started from stewardship duty and is concerned with the keeping of books of accounts and preparation of financial statement for the entire organisation on historical basis. The reports prepared by a financial accountant are both for internal and external use.

The financial statement prepared through financial accounting is to ascertain the profit or loss of an organisation during a particular period. Financial accounting is also used to determine the financial position of an organisation which shows the company’s assets and liabilities at a particular date.

3.4.2 Cost Accounting

Cost accounting is a branch of accounting that is concerned with how to find out the cost of goods produced or services rendered in an organisation. It also helps organisation in controlling and minimising their costs.

Financial accounting and cost accounting principles and techniques are applied to ascertain and control cost in order to determine increase and/or reduction between budgeted cost and actual cost for management planning, control and decision making.

Cost accounting also include the use of accounting double entry book keeping methods to ascertain cost. This is accomplished through the collection of cost data in an organised pattern from accounting information systems.

3.4.3 Management Accounting

Management accounting is a branch of accounting that uses different quantitative analysis tools to project for the future of an organisation. It is the provision of timely and reliable information for planning, control and decision making by organisation’s management.

Management accounting is also referred to as managerial accounting because this branch of accounting is basically to provide information for organisation management to take decisions and effect controls.

3.4.4 Auditing

Auditing is an independent examination of the books of accounts, records and financial statement of an organisation by an independent person called an auditor. Auditing is a branch of accounting because the role of an auditor is performed by accounting professionals who chooses to be an auditor instead of financial accountant, cost accountant or management accountant.

The auditing of company’s financial records and accounts is to ensure that complete and reliable financial statements are published or released to the public by companies so that creditors, government, investors and other users can rely on it for decision making. The auditor is expected to form an independent opinion on the audited financial statement after gathering various forms of audit evidence from the audit exercise. The auditor’s report should

11

show the ‘true and fair’ view of the financial statements audited and the scope of work carried out.

3.4.5 Public Sector Accounting

Public sector accounting refers to accounting services carried out at the local, state and federal government ministries and parastatals. It is a class of accounting that is prepared in compliance with the laws regulating government finances. It is also called government accounting because government has some executive responsibility over it. It is the process of recognising and recording government generated revenue and disbursed expenditure in the appropriate books of accounts.

4.0 CONCLUSION

Accounting includes the collection, recording, presenting, analysing and interpreting financial information for the users of financial statements. It involves accurate book-keeping, records, measuring and interpreting the financial results of the business by the preparation of accounting ratios and communicating these results to management and other interested parties or users. Accounting has the nature of profession, science, language, service activity and information systems. The branches of accounting include financial accounting, cost accounting, auditing, public sector accounting and managerial accounting.

SELF ASSESSMENT EXERCISE
1. List and explain four qualities of a good accounting information system.
2. Discuss the nature of accounting as a service activity.

5.0 SUMMARY

The nature of accounting as a profession, language, information system, service activity and science were explained in this unit. The unit also discussed qualities of good accounting information to include relevance, objectivity, completeness, timeliness, comparable and clarity. Branches of accounting were not left out in the unit.

6.0 TUTOR-MARKED ASSIGNMENT

1. List and explain four branches of accounting.

2. Discuss the following nature of accounting

i. Accounting as a science.

ii.Accounting as a profession.

iii. Accounting as an information system.

iv. Accounting as a language.

3. What do you understand by ‘qualities of good accounting information? List and discuss five of such qualities.

4. Which of the following is not a nature of accounting?

a.Accounting as a profession

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b. Accounting as a language

c. Accounting as an art

d. Accounting as a science

5. There are ________ professional accounting bodies in Nigeria.

a. 2

b. 3

c. 4

d. 5

6. The acquisition of key business information that includes income, expenditure, profit, assets and liabilities are made available from ____________ prepared by accountants.

a. Book keeping

b. Stewardship

c. Source documents

d. Financial statement

7. The qualities of good accounting information system do not include

a. Timeliness

b. Cost

c. Objectivity

d. Relevance

8. Which of the following is not a branch of accounting?

a. Auditing

b. Investment

c. Financial accounting

d. Managerial accounting

7.0 REFERENCES/FURTHER READINGS

Accounting Technicians Scheme West Africa (2009).Basic Accounting Processes and System Part 1, Study Pack ABINA Publishers

Oluyombo, Onafowokan (2016) Financial Accounting With Ease (3rd Edition). Magboro:

Kings & Queen Associates

13

UNIT 2: THE FUNCTIONS OF ACCOUNTANTS IN BUSINESS ORGANISATIONS

CONTENTS

1.0 Introduction

2.0 Objectives

3.0 Main Content

3.1 Who is an Accountant?

3.2 Essential Features of a Business Organisation

3.3 Functions of Accountants

4.0 Conclusion

5.0 Summary

6.0 Tutor-Marked Assignment

7.0 References/Further Readings

1.0. INTRODUCTION

Every business organisation is expected to keep its financial records accurately and in an orderly manner. This task is expected to be performed by an accountant engaged for such purpose by the organisation.

2.0. OBJECTIVES

At the end of this unit, you should be able to:

v. Define who an accountant is.

vi. Understand the essential features of business organisations.

vii. Explain what accountant does.

viii. Discuss how accountants add value to business organisations

3.0 MAIN CONTENT

3.1 WHO IS AN ACCOUNTANT?

An accountant can be defined from broad perspective as a person who carries out accounting functions for or within an organisation. Since accounting includes financial accounting, cost accounting, managerial accounting and auditing, it means therefore that accountants also include financial accountants, cost accountants, management accountants and auditors.

Accounting been a profession also make it that there are professional accountants who are members of one or more accounting professional bodies such as the Institute of Chartered Accountants of Nigeria (ICAN) and Association of National Accountants of Nigeria (ANAN) in Nigeria. Accountants are those with necessary professional accounting qualifications who have been certified as fit and qualified to practice accounting by government approved accounting professional bodies.

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Accountants render their services to business organisations. Business can be seen as a regular activity between two or more parties which leads to the creation of utility that satisfies human wants in form of goods and services. From economist point of view, utility is the satisfaction derived from consuming a particular product or accepting a service.

3.2 ESSENTIAL FEATURES OF A BUSINESS ORGANISATION The followings are the essential features of a business organisation

i. The need to make profit and ensure adequate return for the owners no matter how small it may be.

ii. There is an element of risk. It has been said before that business is a risk. There is an inherent risk in every business transaction irrespective of the amount involved. Although, some businesses are more risky than the other, but the ability to handle and manage risk is part of business. In essence, any person that is not interested in taking risk can not be involved in business activities.

iii. Business is done with the sole aim of continuity. It is not one-off event, but there should be regularity and consistency in the trade. This will enable present customers to refer new customers to the business. Business is not started with the intention of selling or trading for a single period or time but for present and the future purposes.

iv. Where business is involved, there must be an exchange between the parties. The parties in a business must let go of one thing as a price for another. In such cases there will be exchange of goods or services for money.

Nigeria is a mixed economy country where private sector participant is allowed in selling of goods and provision of services in addition to public enterprises. The private participants are sole proprietorship, partnership and limited liability company.

3.3 FUNCTIONS OF ACCOUNTANTS

The functions of accountants are multi facet because it covers all the process involve in the conception of business idea, the birth of the business, its sustenance and possibly the winding-up of the business if need be.

3.3.1. Maintenance of Books of Accounts

This function include the preparation of all the subsidiary books of account namely sales day book or journal, purchases journal or day book, returns inwards day book or journal, returns outwards day book or journal, cash book, petty cash book and journal proper. The above records are prepared and transferred to the appropriate accounts in the ledgers by the accountant prior to the preparation of the trial balance.

The accounting records above are kept to know the amount of cash and cheques received and paid so that the organisation will know how much money it has at any particular time. It’s

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also to reveal the goods purchased and sold on credit and for cash. This enables the organisation to know who owes it money, those whom it owes money and how much.

3.3.2 Preparation of Financial Statements

One of the functions of an accountant is to prepare financial statements that can be relied upon by business organisation and other third parties. The financial statement prepared by accountants should include the statement of profit or loss and other comprehensive income, statement of financial position, statement of changes in equity and statement of cash flows.

The above statements provide required information of business income, expenses, profit, assets, liabilities and capital. It’s the accountant that prepares these statements at regular interval but it must be timely and accurate.

3.3.3 Interpretation of Financial Statements

In addition to the preparation of financial statements, accountants function include the analysis and interpretation of the prepared statements to different groups of users of the statement because not all users of financial statements have the required technical expertise to understand or decode the accounting language with which financial statements are prepared.

The contents of financial statements that are prepared in accordance with appropriate laws and regulations are further broken down into simple language and calculations to explain the statements to different users by the accountant. This function enables non accountant to understand what financial statements contain and their implications for business organisation in both the short and long runs.

Without the accountants, financial statements will not make any meaning to many people. Accountants therefore prepare some analysis such as returns on investment, cash ratio, liquidity ratio, leverage ratio, returns on capital employed, average stock, cost of capital and return on equity from the financial statements. These analysis will show profitability of the business, whether the business will be able to pay its debts or not, level of activity and productivity, and the effect of loans on the organisation profitability and financial stability.

3.3.4 Statutory Audit

As explained in chapter one that auditing is a branch of accounting, this can be auditing carried out to meet stated laws and regulation which is referred to as statutory audit. Accountants that choose to be auditors provide external auditing services as external auditors to both trading and non-trading organisation in compliance with government regulations.

The external auditing service provided by accountants is to ensure that complete and reliable financial statements are published or released to the public by companies so that creditors, government, investors and other users can rely on it for decision making. The auditor is expected to form an independent opinion on the audited financial statement after gathering various forms of audit evidence from the audit exercise. The auditor’s report should show the ‘true and fair’ view of the financial statements audited and the scope of work carried out.

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3.3.5 Assets Safeguarding

One of the accountant functions is to safeguard the assets of an organisation through proper documentation and internal control mechanism such that the correct amounts of money are paid to those entitled to them at the right time and collection of the company’s debts as at when due.

3.3.6 Tax Services

Companies are required by law to pay levies and taxes at different period to the local, state and federal governments depending on the nature of the organisation business and the sector the company belongs. The calculation, preparation and remittance of appropriate tax payable to the government are the function of the accountant. Accountants therefore ensure that they are conversant and versatile in taxation in order to represent the interest of their organisation accurately so that the company will not be subjected to tax penalty for non-compliance with relevant tax laws either in full or in part.

Accountants also engage in tax planning for organisation with the possibility of minimising the tax payable. The government also engage the services of accountant to investigate the adequacy of tax paid by organisations.

3.3.7 Financial Advisory Services

Financial advisory services are not too common unique services provided by experienced accountants for different organisations. These services include share registration with company’s registrar and the stock exchange. Formation and liquidation of companies, investment analysis and appraisal for current and new investments, and business expansion consultancy service which include loan packaging from financial institutions.

3.3.8 Management Advisory Services

Many organisations rely heavily on the multi-disciplinary and extensive knowledge of

accountants to provide management advisory services to them. Accountants render

professional advice in the area of mergers, takeover and acquisition between two or more

companies. Any organisation that want to issue shares to the public also need a reporting

accountant as provided for by government regulation. There is no end to the services that

accountants render in their capacity as management advisor. The services include

recruitment, assurance, outsourcing as company’s representative, installation and training on

the computer based accounting system to adopt and advice if an organisation should enter a

new line of business or divest.

3.3.9. Investigation Services

Internal control systems are instituted by men and there are people in organisations that want to commit fraud and therefore look for ways to subvert the control system. Since no organisation is immune to fraud, the services of accountants are engaged to investigate fraud

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at different levels in organisations because of their technical competence to trace financial transactions from the beginning to the end. Accountants also provide services to investigate any other matter in addition to fraud for which investigation services are required by an organisation.

SELF ASSESSMENT EXERCISE
1. Who is an accountant?

2. What are the functions of accountants in a business organization?

4.0 CONCLUSION

An accountant is a person who carries out accounting functions for or within an organisation. Accountants include financial accountants, cost accountants, management accountants and auditors. In addition to the preparation of financial statements, accountants function include the analysis and interpretation of the prepared statements to different groups of users of the statement because not all users of financial statements have the required technical expertise to understand or decode the accounting language with which financial statements are prepared.

5.0 SUMMARY

This unit was used to define who an accountant is and explained what accountant does. The ways by which accountants add value to business organisations which include the maintenance of books of accounts, preparation of financial statements, statutory audit, tax services and other financial advisory services were also discussed.

6.0 TUTOR-MARKED ASSIGNMENT

1. _________ reports on the true and fair view of an organisation’s financial statements.

a. Financial accountants

b. Government agencies

c. The Auditor

d. Public users

2. Every business organisation is expected to keep its __________accurately and in an orderly manner.

a. business

b. accountants

c. focus

d. financial records

3. The two government recognised accounting professional bodies in Nigeria are:

a. Association of National Accountants of Nigeria and Chartered Institute of Accountants of Nigeria

b. Association of National Accountants of Nigeria and Institute of Chartered Accountants of Nigeria

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c. Association of Nigeria National Accountants and Chartered Institute of Accountants of Nigeria

d. Association of Nigeria National Accountants and Institute of Chartered Accountants of Nigeria

4. What are the essential features of a business organisation?

5. List and explain three functions of an accountant.

6. Write short notes on the following

a. Statutory audit.

b. Financial advisory service

c. Assets safeguarding

d. Tax services

7.0 REFERENCES/FURTHER READINGS

Accounting Technicians Scheme West Africa (2009).Basic Accounting Processes and System Part 1, Study Pack ABINA Publishers

Oluyombo, Onafowokan.(2014) Fundamentals of Finance, Money and Banking.Magboro:

Kings & Queen Associates

Oluyombo, Onafowokan (2016) Financial Accounting With Ease (3rd Edition). Magboro:

Kings & Queen Associates

19

UNIT 3: THE ACCOUNTING FUNCTIONS AND ITS RELATIONSHIP WITH THE INFORMATION SYSTEM OF ORGANISATIONS

CONTENTS

1.0 Introduction

2.0 Objectives

3.0 Main Content

3.1 Accounting Functions in Organisation Information System

4.0 Conclusion

5.0 Summary

6.0 Tutor-Marked Assignment

7.0 References/Further Readings

1.0 INTRODUCTION

Accounting consists of all the processes in designing and operating an efficient accounting information system that leads to collection, recording, measuring, summarising, analysing and communicating the results of financial transactions for a particular period to users of financial information to make informed decisions.

Accounting is a discipline that is involved with the recording, classification and interpretation of financial information for both profit and not-for-profit organisations about the economic activities of the organisation so that accurate decisions can be made based on the accounting information provided. This unit focuses on the accounting functions and how it relates to the organisation.

2.0 OBJECTIVES

At the end of this unit, you should be able to:

i. Know how accounting function in an organisation information systems

ii. Explain the relationship that exist between accounting and organisation information system

iii. Understand the role of accounting in an organisation.

3.0 MAIN CONTENT

3.1 Accounting Functions in Organisation Information System

The functions of accounting as it relates to the information system of an organisation include:

i. Decision making

Accounting is a veritable tool that provides relevant information for profit and not-for-profit organisations and other users of financial statements to make informed decisions.

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ii. Recording

Accounting deals with the preparation of all the subsidiary books of account namely sales day book or journal, purchases journal or day book, returns inwards day book or journal, returns outwards day book or journal, cash book, petty cash book and journal proper. The recording function of accounting includes the completion of the double entry principles in the ledgers and onward transfer of the closing balances of the ledgers to extract a trial balance.

The accounting recording above helps to know the amount of cash and cheques received and paid so that the organisation will know how much money it has at any particular time. It’s also to reveal the goods purchased and sold on credit and for cash. This enables the organisation to know who owes it money, those whom it owes money and how much.

iii. Measurement

Accounting is used to measure the financial performance of an organisation to show the income, expenses, profit, assets, liabilities and financial position at a given time period.

iv. Control

Accounting brings internal and external control process and management to organisation after identifying weaknesses in an operational system. With accounting, effective measures to rectify operational weaknesses in an organisation are implemented.

v. Forecasting

Accounting makes use of historic or past financial data in forecasting future performance and financial position of different organisations.

vi. Government regulation

Accounting functions in a way that provides necessary information to the government and its agencies at local, state and federal levels for the government to be able to exercise control on the organisation which include the collection of both direct and indirect taxes and levies.

vii. Classifying

Accounting is concerned with the proper and logical analysis of the recorded accounting information to accumulate financial transactions of similar type in one account. The ledger is therefore used in accounting to record and accumulate accounting transactions of similar type in an account.

viii. Summarising

Accounting helps to summarise financial recording into financial statements that can be relied upon by business organisation and other third parties. The summarising done in accounting leads to the preparation of statement of profit or loss and other comprehensive income, statement of financial position, statement of changes in equity and statement of cash flows.

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ix. Interpreting

In addition to summarising financial records, accounting is used in interpreting financial statements to different groups of users of the statement because not all users of financial statements have the required technical expertise to understand or decode the accounting language with which financial statements are prepared.

The contents of financial statements that are prepared in accordance with appropriate laws and regulations are further broken down in accounting into simple language and calculations to explain the statements to different users by the accountant. This function enables non accountant to understand what financial statements contain and their implications for business organisation.

Accounting is used in preparing some analysis such as returns on investment, cash ratio, liquidity ratio, leverage ratio, returns on capital employed, average stock, cost of capital and return on equity from the financial statements. These analysis will show profitability of the business, whether the business will be able to pay its debts or not, level of activity and productivity, and the effect of loans on the organisation profitability and financial stability.

x. Assets Safeguarding

The accounting function through the creation and use of assets register which including the labelling of organisation assets for proper identification help to safeguard company’s assets. This is also useful for stock taking and management can rely on it for proper decision in asset acquisition and disposal.

xi. Tax Services

The information system requirement of an organisation requires that a company knows how its obligation to the government in the collection of different taxes on behalf of the government and payment of same to it can be accomplished. The accounting function in the determination of taxes such as pay as you earn and value added tax help the organisation to comply with relevant tax regulations.

SELF ASSESSMENT EXERCISE
1. What is accounting information?

2. What are the relationship that exists between accounting functions and organisation information system?

4.0 CONCLUSION

The relationship that exists between accounting functions and organisation information system helps in proper recording, planning, forecasting and control such that management are able to comply with relevant government regulations and make useful decision to safe guard the organisation assets.

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5.0 SUMMARY

This unit discussed the relationship between accounting function and information systems of an organisation under different headings such as decision making, recording, forecasting, summarising, measurement, control, government regulation, classifying, interpreting, and assets safeguarding.

6.0 TUTOR-MARKED ASSIGNMENT

1. Explain how the following accounting functions relate with organisation information system.

i. Recording

ii. Interpreting

iii. Measurement

iv. Forecasting

2. Can accounting functions in an organisation be performed outside the information system of the organisation? Justify your answer with appropriate explanation.

7.0 REFERENCES/FURTHER READINGS

Accounting Technicians Scheme West Africa (2009).Basic Accounting Processes and System Part 1, Study Pack ABINA Publishers

Oluyombo, Onafowokan. (2014) Fundamentals of Finance, Money and Banking.Magboro:

Kings & Queen Associates

Oluyombo, Onafowokan (2016) Financial Accounting With Ease (3rd Edition). Magboro:

Kings & Queen Associates

23

UNIT 4: USERS AND USES OF ACCOUNTING INFORMATION

CONTENTS

1.0 Introduction

2.0 Objectives

3.0 Main Content

3.1 Users of Accounting Information

3.2 Uses of Accounting Information

4.0 Conclusion

5.0 Summary

6.0 Tutor-Marked Assignment

7.0 References/Further Readings

1.0 INTRODUCTION

The reports generated by the financial and management accountants are useful to different groups of people depending on what they need from the report. This unit focuses on the uses of accounting information and users of accounting information such as business owners, government, suppliers, employees, loan providers, and investors.

2.0 OBJECTIVES

At the end of this unit, you should be able to:

i. Understand the importance of accounting information

ii. Identify and explain users of accounting information

iii. Discuss the uses of accounting information

3.0 MAIN CONTENT

3.1 Users of Accounting Information

The users of accounting information can be grouped into two categories. The first category is the direct users while the second category is indirect users.

The direct users are members of the organisation that relied on the accounting information to make daily, routine and other decisions. These users are the shareholders, managers,

The indirect users are the third party to the organisation who relate with the company either directly such as suppliers and customers, or indirectly such as financial analysts and prospective investor and tax authorities.

The main users of accounting information are discussed below.

3.1.1 Shareholders

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Shareholders are the owners of a company and they are interested in the performance of the company, which includes the profit earned, dividends to be paid and net worth of the business. They also like to compare the performance of the company with a similar organisation.

3.1.2 Government

The government is interested in accounting information to determine the company income tax to be paid, compliance with government rules and regulations governing the operation of the business. And also to ensure that the interests of the public are protected within the company activities.

3.1.3 Employees

The aim of employee is to be sure of continuous existence of the organisation which will guarantee their employment. They also use the financial statement to compare their remuneration in total with other comparable companies in the same industry.

3.1.4 Investors

Investors are those who intend to invest in a company and they will compare the returns on their investments and shareholders fund with companies of same nature before investing their money in such company because they want to maximise wealth.

3.1.5 Loan Providers

Loan providers are banks and other financial institutions. The liquidity position of the company is of paramount importance to this group to ensure the repayment of their loans as at when due. The liquidity position of a company is derived from the accounting information.

3.1.6 Suppliers

Companies rely on suppliers for different input such as raw materials, work-in-progress and finished goods on credit. The concern of the suppliers is to know how stable the company is financially in order to meet their bills and invoices as at when due. They want to be sure that their debt will be paid at the required time by the company.

3.2 Uses of Accounting Information

Accounting information is put into different uses as explained below.

i. Accounting information is useful to predict and evaluate company’s cash flows which creditors, loan providers and those in similar category can relied on.

ii. The use of accounting information helps in business analysis especially when there is need to predict, evaluate and compare financial performance of a company

iii. Accounting information provides the required essential financial information that is useful for making economic decisions at different levels for individuals and

25

organisations.

iv. Accounting information is used to determine financial ability of company’s management. This explains and reveals how the company’s resources are channelled towards the firm objectives.

v. Accounting information is used by the government to determining the tax payable by companies on their profits, and for individuals such as pay as you earn, and other tax payable such as VAT. All these are used by the government to formulate fiscal policy.

vi. Accounting information is used by company’s management for daily and routine planning and control of the company’s resources to achieve the company’s objectives.

vii. The activities of organisation as it affects the public are reported using accounting information.

viii. Investment decisions by shareholders and future investors are based on accounting information provided at a particular period of time.

SELF ASSESSMENT EXERCISE

1. Identify three indirect users of accounting information and explain why they need the information.

4.0 CONCLUSION

Accounting information are the records, reports and statements prepared by financial and management accountants for different organisations. The information is useful to different groups of people depending on what they need from the report. There are direct users of accounting information such as shareholders and managers etc, and indirect users of accounting information such as government and financial analysts etc.

5.0 SUMMARY

This unit explained accounting information including the users of accounting information such as shareholders, employees, government, creditors and suppliers. The uses to which accounting information is put were also discussed.

6.0 TUTOR-MARKED ASSIGNMENT

Question 1. List and explain three direct users of accounting information

Question 2. How important is accounting information to business decisions?

Question 3. To what use can accounting information beput?

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7.0 REFERENCES/FURTHER READINGS

Accounting Technicians Scheme West Africa (2009).Basic Accounting Processes and System Part 1, Study Pack ABINA Publishers

Garbutt, D. (1984), Carter’s Advanced Accounts “7th Edition”. London: Pitman Publishing Limited

Igben, R. O. (2014), Financial Accounting Made Simple. Lagos: ROI Publishers Oluyombo, Onafowokan (2016) Financial Accounting With Ease (3rd Edition). Magboro:
Kings & Queen Associates

Soyode, A. (1980), Financial Accounting: Principles and Practice. Uk: Graham Burn.

27

UNIT 5: BASIC ACCOUNTING CONCEPTS AND CONVENTIONS

CONTENTS

1.0 Introduction

2.0 Objectives

3.0 Main Content

3.1 Accounting Concepts

3.2 Accounting Conventions

4.0 Conclusion

5.0 Summary

6.0 Tutor-Marked Assignment

7.0 References/Further Readings

1.0 INTRODUCTION

One of the things that is common in the preparation of accounting records by accountants are the rules that they follow. The laid down rules that are complied with in the preparation of accounting records for any organisation which is called ‘accounting concept’ and the tradition for the preparation of accounting records which is called ‘accounting convention’ are the focus of this unit.

2.0 OBJECTIVES

At the end of this unit, you should be able to:

i. Define accounting concept

ii. Explain different accounting concept

iii. Define accounting conventions

iv. Discuss key accounting conventions

v. The implication of accounting concepts and conventions in preparation of accounting records

3.0 MAIN CONTENT

3.1 Accounting Concepts

Accounting concepts are principles upon which preparation of accounting records are based, which are universally acceptable. Accounting concepts are rules of the game which accountants have generally come to accept and use over the years. Accounting concepts can also be seen as rules that lay down the way for recording business activities. The preparation of accounting records for any organisation must follow the principles set out in the accounting concepts. The most common of these concepts are:

3.1.1 Entity Concept

The entity concept sees an organisation as a legal entity, separate and distinct from its owners. In recording the books of accounts, the business records are kept and treated

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separately from the owners even in a situation where the business is owned by a person. The only attempt to show any records about the owners is when there is a transaction between the business and the owners. For example, if the owners increase their capital in the business and where the owner withdraws money from the company. In any of these cases, the records of the business will only show how the action of the owner (i.e. capital or drawings) affects the business, but it will not extend to the personal resources of the owners.

3.1.2 Going Concern Concept

The going concern concept states that when recording the account of a business organisation, it should be assumed that the business will be in existence for a very long period of time without any intention to close the company later. However, where there are enough facts or evidences that the business will soon be close down, it should be taken into account and the business should not be seen as remaining in operation for a very long period of time.

Basically, the going concern concept is assuming that a business organisation will continue in operation for an indefinite period of time.

3.1.3 Dual Aspect Concept or Double Entity Concept

The concept recognises that an organisation has to transact business with other parties and when a transaction occurs, it will give rise to having two records. One record for the business and another record for the other party.Dual aspect or double entity concept recognise that for every transaction, there are always two parties involved. One party is giving, while the other party is receiving and it represents the assets of the business and claims (liabilities) against it.

If the dual aspect concept is properly followed, the two aspects in total (assets and liabilities) must be equal to each other. The technique that reflects this concept is called the double entry principle.

3.1.4 Cost Concept

The cost concept states that in recording the value of a company’s assets, the value should be stated or recorded at cost price or the original cost as this will ensure that all transactions are objectively recorded as against using their current values, which is different from the cost price.

3.1.5 Accrual Concept

According to accrual concept, when determining the profit of a business for a particular period, information to be used should not be restricted to income and expenditure that have been paid for or received, but should be extended to those revenue and expenditure that have not been received or paid for, but for which the service has been enjoyed or rendered during the period.

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It means that revenues should be recognise immediately it is earned while expenses are recognised when they are incurred, but not when the money is received or paid.

3.1.6 Money Measurement Concept

Many things do happen in an organisation on daily basis; however, for an event to be recorded in the accounting books of a business, they must be those events or transactions that can be measured in terms of money. For instance, the accounting records do not show if a company has a good or bad management team or if the owner is ill or healthy. However, any thing that could be quantified in monetary terms like payment of salaries of N20,000 will be recorded in the books of accounts.

3.1.7 Matching Concept

This states that revenues and expenses for any accounting period should be matched with each other so as to bring them into the accounting period to which they relate, so that the profit or loss for the period can be ascertained. This concept brought about adjustments in the final accounts at year end which is the focus of unit 15.

3.2 Accounting Conventions

Accounting conventions refer to customs adopted by accountants which serve as guide to the preparation of accounting records which include the financial statements.

3.2.1 Convention of Prudence

The convention of prudence state that profit should not be anticipated when recognising profit to be recorded in financial statement, but the profit should be based on actual profit earned or realised for the particular period. It means that figures that will overstate the profit should be disregarded; rather, the profit should be understated.

3.2.2 Convention of Materiality

Compliance with convention of materiality requires that in recording any transaction, recognition should be given to items that are ‘material’ to the company. What is material to company OP may be immaterial to company XY. The size of the business, the capital, the nature of the item and the cost or value of the item will determine its materiality. In other word, time should not be wasted in elaborate recording of trivial items. Whatever will not impair the judgement of an accounting information user may not be considered material.

3.2.3 Convention of Consistency

The convention of consistency requires the adoption and usage of accounting policy and method in preparation of accounting records for a reasonable period of time, and same method should be followed for all similar transactions. This suggest that accounting policies and procedure should not be changed arbitrarily and regularly in order not to distort the financial statement.

The adoption of convention of consistency in the preparation of accounting record over a reasonable period of time will helps users of accounting information to make comparison between accounting periods. For instance, if an organisation depreciation method on non-

30

current assets is reducing balance method, the organisation should follow the method year after year. However, organisations are allowed to change their accounting methods for valid reason, but the effect of such change must be stated in the final accounts of the year when the change occurs.

SELF ASSESSMENT EXERCISE
1. What do you understand by accounting concepts?

2. List two accounting concepts and explain them.

3. Differentiate between accounting concepts and accounting conventions.

4.0 CONCLUSION

The laid down rules that are complied with in accounting in the preparation of accounting records is called ‘accounting concept’. Accounting concepts such as entity concept, going concern concept, dual aspect concept, cost concept, accrual concept and money measurement concept are principles upon which preparation of accounting records are based, which are universally acceptable. Accounting conventions such as convention of prudence, convention of materiality and convention of consistency are the traditions and customs adopted by accountants for the preparation of financial statements.

5.0 SUMMARY

This unit defined and explained accounting concepts and accounting conventions. Accounting concepts such as entity concept, going concern concept, dual aspect concept, cost concept, accrual concept and money measurement concept were discussed including convention of prudence, convention of materiality and convention of consistency

6.0 TUTOR-MARKED ASSIGNMENT Question 1: What is accounting conventions?

Question 2: Explain the following:

i. Accrual concept

ii. Convention of consistency

iii. dual aspect concept

Question 3: Write short note on:

i. Convention of prudence

ii. Money measurement concept

iii. Convention of materiality

iv. Cost concept

7.0 REFERENCES/FURTHER READINGS

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Accounting Technicians Scheme West Africa (2009).Basic Accounting Processes and System Part 1, Study Pack ABINA Publishers

Garbutt, D. (1984), Carter’s Advanced Accounts “7th Edition”. London: Pitman Publishing Limited

Igben, R. O. (2014), Financial Accounting Made Simple. Lagos: ROI Publishers Oluyombo, Onafowokan (2016) Financial Accounting With Ease (3rd Edition). Magboro:
Kings & Queen Associates

Soyode, A. (1980), Financial Accounting: Principles and Practice. Uk: Graham Burn.

32

UNIT 6: SOURCE DOCUMENTS AND SUBSIDIARY BOOKS: SALES DAY BOOK

CONTENTS

1.0 Introduction

2.0 Objectives

3.0 Main Content

3.1 Source Documents and Its Uses

3.2 Subsidiary Books

3.3 Sales Day Book

4.0 Conclusion

5.0 Summary

6.0 Tutor-Marked Assignment

7.0 References/Further Readings

1.0 INTRODUCTION

The preparation of different books of accounts including the subsidiary books by accountant rely on some known and widely accepted documents that are exchanged between two or more parties in the conduct of business transactions. These documents that buyers and sellers exchanged between each other which are binding on both parties are called source documents in accounting. This unit explains source documents, types and uses of source documents, the relationship between sales and discount, and how to prepare subsidiary books of accounts.

2.0 OBJECTIVES

At the end of this unit, you should be able to:

i. Define source documents

ii. Explain the importance of source documents

iii. Know and prepare sales day book

iv. Discuss the uses of subsidiary books

v. Explain the relationship between sales and discount.

3.0 MAIN CONTENT

3.1 SOURCE DOCUMENTS AND ITS USES

Source documents are business documents confirming the occurrence of financial transaction between two or more parties. Source documents are written financial information exchange between two or more parties as a result of engaging in business transaction. These documents are used for the first entries in the subsidiary books of accounts. Source documents include invoices, receipts, debit notes, credit notes, payment vouchers, cheque books, clock cards, time sheets and bank tellers.

Types and uses of source documents are discussed below.

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3.1.1 Invoice

This is a document that shows the transfer of goods and/or provision of service between two or more parties for which payment is yet to be received. Invoice under normal circumstance is meant for credit transactions which include credit sales and credit purchases. However, many sole traders do not know the function of an invoice to the extent that all their sales (cash and credit) are documented using invoice. Invoices are recorded in sales day book or purchases day book depending if it is sales invoice or a purchases invoice.

3.1.2 Payment Voucher

This is a document that is used to record full details of money paid for a particular purpose. It shows that money has left a particular account to another party or for the settlement of financial obligation. Payment voucher will contain the name of the receiver, amount paid, purpose of the payment, date of payment, mode of payment – cash or cheque, signature of the receiver, name and signature of the approving authority.

3.1.3 Cheque

A cheque is a negotiable instrument that originates from banks and it is used to withdraw money from a stated bank account in a bank. A cheque usually contains the name of the bank account holder, the account number, the branch of the bank where the bank account is domiciled or opened, the name of the bank, the date for the payment of the cheque, a place for the owner’s signature, and amount to be withdrawn in words and figure.

3.1.4 Receipt

This is a document confirming the receipt of money for goods and service sold or bought. Receipts are used in recording the cash book since it is an evidence of cash and cheque transactions. A receipt usually contain the name of the payers, amount paid, date of payment, purpose of payment, signature of the receiver.

3.1.5 Bank Teller

This is a document that emanate from the bank because a bank teller is used to pay or lodge money (cash and cheques) into an account in a bank. It serves as evidence that a payment has been made or lodged into a particular account with a stated branch of a bank. Bank teller will contain the name of the depositors, account to which deposit is made, the name of the bank account holder, amount deposited in words and figure, date of the deposit, serial number of the teller, signature and stamp of the bank official that collected the deposit on behalf of the bank.

3.1.6 Credit Note

Credit note is a document showing a claim or refund in favour of the receiver. It is used to correct overcharge on an invoice, allowance for minor damages to goods, and refund on goods returned.

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3.1.7 Debit Note

A debit note is a source document that is used when a customer’s account is to be increased, and to establish costs against the recipient. It therefore means that a debit note will be used to effect correction when a customer/purchaser has been undercharged for goods and/or services.

3.2 SUBSIDIARY BOOKS

These are books in which accounting transactions are first recorded before been posted to their various accounts in the ledger. Subsidiary books are also called books of prime entries or books of original entries. These books are not account with the exception of the cash book, but the balances from the subsidiary books are used to update accounts. The subsidiary books are:

i. Sales day book or sales journal

ii. Purchases journal or purchases day book

iii. Returns inwards journal or returns inwards day book

iv. Returns outwards day book or returns outwards journal

v. Journal or Journal proper

vi. Cash book or single column cash book

vii. Two column cash book

viii. Three column cash book

ix. Petty cash book

The day books are used to record credit transactions in the order in which they occurred and for transactions of a similar nature. Credit transaction is that, in which goods and/or services exchange hands and payments are paid in future. This implies that sales and purchases on credit will be recorded in separate day book because they are not of a similar nature. Likewise, no cash transaction is recorded in the day books for whatever reason. The first of the subsidiary books stated above, i.e. sales day book will be considered in this unit while the remaining eight books of original entries (ii to ix) will be considered in unit 7 to unit 11.

3.3 SALES DAY BOOK OR SALES JOURNAL

Sales journal is a book of original entry used to record all goods sold and services rendered on credit to a third party in the order in which they occurred irrespective of the amount involved. The sales day book or sales journal is not an account because it does not have a debit or credit side, and neither can cash sales nor other cash and bank transactions be recorded in it.

The value of credit sales which are first recorded in the sales journal will be transferred individually to the respective customer’s account in the ledger (see unit 12), while the total of all credit sales for the period as recorded in the sales day book is transferred to the credit side of the sales account in the ledger.

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The process of transferring from the day books to the ledger is called posting. This is achieved for all credit sales by debiting the customer’s (debtors) account with individual customer amount and crediting the seller’s (sales) account. The actual posting of books of original entries to their different accounts are treated in unit 12.

Examples of transactions that require the preparation of sales journal are considered below.

Example 1:Mrs. Peace Oluwalagba made the following credit sales in the month of March 2016

N

Account Details

Bank Name: --

Account Name: --

Account No: --

Name*

Email*

Payment screenshot (Proof)

Tips/Instructions

Registered User: Not necessary you type your email again.
Unregistered User: Ensure you enter your email after payment
After payment, upload the evidence and wait for 5 seconds and Submit
The TMA expert will easily send you the TMA answers directly to your email from his/her Dashboard
If the expert default or you have a complain, you can email us admin@nounloaded.com.ng
Account of defaulter automatically gets suspended once we receives disturbing reports.

November 19, 2025 12:50 PM

Support

March 1 Mr. Praise 18,200
March 4 Mr. Success 2,450
March 6 Mr. Comfort 44,440
March 8 Madam Uche 9,365
March 18 Great Glory Limited 80,000
March 24 Obinna Sunday 1,080
March 29 Adewale Jude 2,110
March 30 Esther Favour 3,330

You are required to prepare her sales day book for the month.

SUGGESTED SOLUTION TO EXAMPLE 1

Mrs. Peace Oluwalagba

Sales Day Book

For the month of March 2016

Date Particular Amount ( N )

1-3-16 Mr. Praise 18,200

4-3-16 Mr. Success 2,450

6-3-16 Mr. Comfort 44,440

8-3-16 Madam Uche 9,365

18-3-16 Great Glory Limited 80,000

24-3-16 Obinna Sunday 1,080

29-3-16 Adewale Jude 2,110

30-3-16 Esther Favour 3,330

Total sales for the month credit 160,975
to sales account

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Example 2: The following credit sales relate to the business of Great Grace Limited for October 2016. You are to prepare the sales journal.

October 6. 14 bags of cement to Chukwuyemisi at N980 each

20. 7 packets of roofing sheet to Paul at N4,010 per packet and 3 dozens of roofing nail at N220 per dozen.

26. 5 tons of Iron rods to ABC Limited for N17,840

31. 1½ dozens of roofing nail to Emmanuel at N240 a dozen.

SUGGESTED SOLUTION TO EXAMPLE 2

Great Grace Limited

Sales Journal

For the month of October 2016

Date Particulars Details Amount ( N)
6-10-2016 Chukwuyemisi
13,720
14 bags of cement at N 980 each
20-10-2016 Paul
7 packets of roofing sheets at
N 4,010 per packet 28,070
3 dozens of roofing nail at
N 220 per dozen 660 28,730

26-10-2016 ABC Limited
5 tons of iron rods 17,840
31-10-2016 Emmanuel
1½ dozens of roofing nail at N 240 360
a dozen
Total sales for the month credit to 60,650
sales account

Example 3: Danladi Enterprises sold the following goods on credit in the month of June 2015.

Goods sold to DaboN20,750 on June 1. On June 10, he sold 5 pieces of calculator to Daniel at N1,250 each. On June 18, Ifeanyi bought 7 pairs of shoe at N1,400 per pair; 15 pieces of

37

mobile handset at N6,200 each and another starter pack costing N22,000 on credit from Danladi Enterprises.

You are required to prepare the sales journal to record the above transactions.

SUGGESTED SOLUTION TO EXAMPLE 3

Danladi Enterprises

Sales Journal

For the month of June 2015

Date Particulars Details Amount ( N )
1/6/2015 Dabo 20,750

10/6/2015 Daniel
5 pieces of calculator at N 1,250 each 6,250

18/6/2015 Ifeanyi
7 pairs of shoe at N 1,400 per pair 9,800
15 pieces of mobile handset at
N 6,200 each 93,000
Starter pack 22,000 124,800

Total sales for the month credit to 151,800
sales account

3.3.1 Sales and Discounts

The marketing and sales of goods and services have become more competitive over the years that sellers of goods and those who render services have developed a way of attracting more customers, increase their sales and ensure regular payment from credit customers or debtors through the use of discount.

3.3.2 Discount

Discount can be defined as an inducement given to customers to enable them buy in large quantity, obtain profit margin price when goods are sold and/or for prompt payment by debtors. There are different types of discounts as explained below.

3.3.2.1 Trade Discount

Trade discount is a reduction in price given to a customer who buys for re-sale in large quantity. The purpose is to enable the customer achieve a profit margin when the goods are sold.

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3.3.2.2 Cash Discount

This is an inducement given to debtors (credit customers) for paying their debt on time or promptly within the specified time frame or period. It means that, a credit customer can enjoy both the trade discount and cash discount provided the terms for the discounts as specified by the seller are met.

3.3.2.3 Quantity Discount

Quantity discount is a price reduction given to a customer who buys in large quantity for consumption and not for re-sale.

3.3.3 Relationship Between Sales and Discounts

The relationship that exists between sales and discounts depend on the nature of the transaction, either credit sales or cash sales. The relationships are explained below.

3.3.3.1 Credit sales

The discount available to those who buy on credit or the customer (Debtors) at point of sale is trade discount. The trade discount can be stated as a percentage of the sales price or a uniform amount that varies with sales value. Where trade discount is given on credit sales, the discount value will be deducted from the sales value in the invoice. The customer will owe the seller the sales value less the trade discount. It is the net price that will be recorded in the customer’s account.

3.3.3.2 Cash sales

As a matter of clarity, trade discount is not given on cash sales; hence, trade discount will be treated with credit sales as explained above. For cash sales, a customer could get cash discount and/or quantity discount. Quantity discount would have been deducted from the invoice leaving the net value which the customer is expected to pay immediately or at a given time. Cash discount can only be recognised when the customer settles his outstanding invoices. Hence, cash discount is treated in accounting records when payment is received from the customer (Debtor). The book of account used for treating this is called three column cash book, which is discussed in unit 11.

Example of credit sales transactions that include discount is treated below.

Example 4:Abundant Blessing is a dealer in frozen foods and dairy products. His sales for the first week of June 2014 are as follows.

June 4. 4 cartons of Cray fish at N1,250 a carton to Jalingo.

7 cartons of shrimps to Gboko at N4,100 per carton.

2 cartons of Cray fish at N1,245 each to Gboko and he received 10% trade discount

June 12. Ajayi bought 15 crates of white egg at N880 per crate and 3½ packets of prawns at N7,200 a packet. A discount of 5% was given to him

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June 16. 6 cartons of Cray fish was sold to Debo for N7,440. He also bought 2 packets of prawns at N7,225 per packet and 5 cartons of shrimps at N4,150 a carton. Being an old customer, Abundant Blessing gave him 15% discount and this encourage him to buy a carton of white egg for N880 but this do not qualify for discount.

June 25. Ijeoma bought a carton each of Cray fish, prawn, white egg and shrimps at same price with Joshua, Ajayi, Debo and Gboko respectively. Being a woman with the ability to negotiate, she received 10% trade discount.

Prepare the sales day book for Abundant Blessing

SUGGESTED SOLUTION TO EXAMPLE 4

Abundant Blessing

Sales Day Book

For the month of June 2014

Date Particulars Details Amount ( N )
4-6-2014 Jalingo
4 cartons of cray fish at N 1,250 a
carton 5,000

4-6-2014 Gboko
7 cartons of shrimps at N 4,100 per
carton 28,700
2 cartons of cray fish at N 1,245
each 2,490
31,190
Less 10% trade discount 3,119 28,071

12-6-2014 Ajayi
15 crates of white egg at N 880 per 13,200
crate
3½ packets of prawns at N 7,200 a 25,200
packet 38,400
Less discount of 5% 36,480
1,920

16-6-2014 Debo
6 cartons of cray fish 7,440
2 packets of prawns at N 7,225 per
packet 14,450
5 cartons of shrimps at N 4,150 a
carton 20,750
42,640
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Less 15% discount 6,396
36,244
A carton of white egg 880 37,124

25-6-2014 Ijeoma
A carton of cray fish 1,250
A carton of prawn 7,200
A carton of white egg 880
A carton of shrimps 4,100
13,430
Less 10% trade discount 1,343 12,087

Total sales for the month credit to
sales account 118,762
4.0 CONCLUSION

Source documents are important because the information contains there in are used in preparing the subsidiary books of account. Accountants rely on source documents to prepare the books of accounts. The source documents are first posted to the subsidiary books of account which include the sales day book, purchases journal, returns inwards journal and returns outwards day book.

SELF ASSESSMENT EXERCISE
1. List five source documents and explain their uses.

2. What is the relationship between sales and discount?

5.0 SUMMARY

In this unit, we explain source documents, uses of source documents, types of discount, the relationship between sales and discount, and how to prepare one of the subsidiary books of account, the sales day book with or without sales discount,

6.0 TUTOR-MARKED ASSIGNMENT

Question 1: Better Voice Communications deals with GSM Phones, Accessories, Recharge cards and Sims pack with head office located at Magboro. The sales for the month of May 2015 is as stated below:

1/5/15 Two Samsung T400 phone at N18,000 each to Leverage Computers. 40 packets of TNN recharge card at N2,000 per packet to Mr.Adeniran. 20 pieces of Nokia 2005 ear phone at N400 each to Mr.Adeniran and he received 10% trade discount.

18/5/15 Funke bought 15 packs of VMT Sims pack atN550 a pack. 4 pieces of Trium 1900s at N10,500 each. Being an old customer, she received 12% discount

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which prompt her to buy 2 packets of NTN recharge card for N28,000 but this do not attract discount.

29/5/15 Mrs.Obinna bought one Bird 1010 phone for N11,340.

You are required to prepare the sales day book of Better Voice Communications for May 2015.

Question 2: Explain the following.

i. Sales day book.

ii. Cash discount.

iii. Trade discount.

7.0 REFERENCES/FURTHER READINGS

Accounting Technicians Scheme West Africa (2009).Basic Accounting Processes and System Part 1, Study Pack ABINA Publishers

Igben, R. O. (2014), Financial Accounting Made Simple. Lagos: ROI Publishers Oluyombo, Onafowokan (2016) Financial Accounting With Ease (3rd Edition). Magboro:
Kings & Queen Associates

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UNIT 7: SUBSIDIARY BOOKS: PURCHASES DAY BOOK

CONTENTS

1.0 Introduction

2.0 Objectives

3.0 Main Content

3.1 Purchases Day Book

3.2 Purchases and Discount

4.0 Conclusion

5.0 Summary

6.0 Tutor-Marked Assignment

7.0 References/Further Readings

1.0 INTRODUCTION

The documents that are exchanged between buyers and sellers which are binding on both parties are called source documents in accounting. The source documents are used to prepare books of original entries. This unit explains one of the subsidiary books of account, purchases day book.

2.0 OBJECTIVES

At the end of this unit, you should be able to:

i. Explain the purchases day book

ii. Prepare purchases day book.

iii. Explain the relationship between purchases and discount.

3.0 MAIN CONTENT

3.1 Purchases Day Book

An invoice is exchanged between a buyer and seller of goods and those that render services. To the seller, the invoice is used to prepare the sales day book. But for the buyer, the same invoice serves as the source document for the preparation of purchases day book. Another name for purchases day book is purchases journal.

Purchases day book is a subsidiary book of account used to record all goods bought and services received on credit from a third party in the order in which they occurred irrespective of the amount involved. The purchases journal is not an account because it does not have a debit or credit side, and neither can cash purchases nor other cash and bank transactions be recorded in it.

After transferring accounting information from the source documents – purchases invoice – to the purchases day book, the value of credit sales which are first recorded in the purchases day book will be transferred individually to the respective suppliers account in the ledger (see

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unit 12). The total of all credit purchases as recorded in the purchases journal for a particular period, usually a month, is transferred to the debit side of the purchases account in the ledger.

The process of transferring from the purchases day book to the ledger is called posting. This is achieved for all credit purchases by crediting the supplier’s or seller’s (creditor) account with individual amount of each supplier, and debits the buyer’s (purchases) account. You can see unit 12 that focuses on the actual posting of books of original entries to their different accounts. Examples of transactions that require the preparation of purchases day book are treated below.

Example 1: The credit purchases of Ball Ventures for the month of June 2015 are stated below. You are required to prepare the purchases day book of the business for the month.

N
June 2 Jesuyemisi 36,200
June 5 Mrs Imelda 41,000
June 10 Miss Tijani 63,234
June 12 Big Box Enterprises 98,765
June 20 Safiya Investment 123,456
June 22 Obioru Limited 62,080
June 25 Umaru Jude and Co. 43,000
June 27 Caleb Joshua 465,960

SUGGESTED SOLUTION TO EXAMPLE 1

Ball Ventures

Purchases Day Book

For the month of June 2015

Date Particular Amount ( N )

June 2 Jesuyemisi 36,200

June 5 Mrs Imelda 41,000

June 10 Miss Tijani 63,234

June 12 Big Box Enterprises 98,765

June 20 Safiya Investment 123,456

June 22 Obioru Limited 62,080

June 25 Umaru Jude and Co. 43,000

June 27 Caleb Joshua 465,960

Total purchases for the month 933,695
transferred to purchases account
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Example 2: The following credit purchases for the month of January 2016 relate to the business of KogiEkiti Enterprises.

January 4. 16 bags of cement from Gombe Global Business at N1,500 each

January13. 12 packets of roofing sheet from Mr. Oyo Ibadan at N4,110 per packet and 5 dozens of roofing nail at N220 per dozen.

January 23. 4 tons of iron rods from Kano Limited for N27,840.

January 28. 3½ dozens of roofing nail from Enugu Investment at N2,440 a dozen.

You are to prepare the purchases journal for KogiEkiti Enterprises for January 2016.

SUGGESTED SOLUTION TO EXAMPLE 2

KogiEkiti Enterprises

Purchases Journal

For the month of January 2016

Date Particulars Details Amount ( N)
Gombe Global Business
4-1-2016
16 bags of cement at N 1,500 each 24,000
13-1-2016 Mr. Oyo Ibadan
12 packets of roofing sheet at N 4,110
per packet 49,320
5 dozens of roofing nail at N 220 per
dozen. 1,100 50,420

23-1-2016 Kano Limited
4 tons of iron rods. 27,840
28-1-2016 Enugu Investment
3½ dozens of roofing nail at N 2,440 a 8,540
dozen.
Total purchases for the month debit to 110,800
purchases account

Example 3: Abuja and Jos International Business Limited purchased the following goods on credit for resale in the month of October 2016. You are required to prepare the company’s purchases day book for the month.

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On October 1, the company received goods worth N33,750 from Lagos Ventures. On October 13, Kaduna Warri Enterprises supplied 15 pieces of calculator at N8,330 each. 22 pairs of shoe at N6,520 per pair; 15 pieces of mobile handset at N80,950 each and another starter pack costing N1,500 were received from Victoria Island Concepts Limited on October 25.

SUGGESTED SOLUTION TO EXAMPLE 3

Abuja and Jos International Business Limited

Purchases Day book

For the month of October 2016

Date Particulars Details Amount ( N )
October 1 Lagos Ventures 33,750

October 13 Kaduna Warri Enterprises
15 pieces of calculator at N 8,330 each 6,250

October 25 Victoria Island Concepts Limited
22 pairs of shoe at N 6,520 per pair. 143,440
15 pieces of mobile handset at
N 80,950 each. 1,214,250
Starter pack 1,500 1,359,190

Total purchases for the month debit to 1,399,190
purchases account

3.2 Purchases and Discounts

The discount available for buying goods on credit at the point of purchase is trade discount. The trade discount can be stated as a percentage of the purchase price or a uniform amount that varies with purchase value. Where trade discount is given on credit purchases, the discount value will be deducted from the purchase value in the invoice. The purchaser will owe the seller the purchase value less the trade discount. It is the net price that will be recorded in the supplier’s or seller’s account.

Example of credit purchase transactions that include discount is treated below.

Example 4: Uche Joy purchased the following goods on credit in the month of March 2016.

March 1. Purchase from AdeyemiN20,750

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10. Purchase 5 pieces of calculator for resale from Bako at N1,250 each

18. Bought from Florence 7 pairs of shoe at N1,400 per pair; 15 pieces of mobile handset at N6,200 each and another starter pack costing N22,000.

Trade discount of 3% was received.

You are required to prepare the purchases journal to record the above transactions.

SUGGESTED SOLUTION TO EXAMPLE 4

Uche Joy

Purchases Journal

For the month of March 2016

Date Particulars Details Amount
1/3/2016 Adeyemi 20,750

10/3/2016 Bako
5 pieces of calculator at N 1,250 each 6,250

18/3/2016 Florence
7 pairs of shoe at N 1,400 per pair 9,800
15 pieces of mobile handset at
N 6,200 each 93,000
Starter pack 22,000
124,800
Less trade discount 3% 3,744 121,056

Total purchases for the month debit to 148,056
purchases account
4.0 CONCLUSION

The invoice is the main source document used in preparing purchases day book for different organisations. The purchases day book or purchases journal record all credit purchases for goods and services irrespective of the amount involved. The purchases journal contains the name of the seller, item purchases, the price and discount received, if any.

SELF ASSESSMENT EXERCISE

1. Explain purchases day book.

2. What is the relationship between purchases and discount?

3. The following credit purchases relate to the business of Mr.Yobe Rivers for August 2015. You are to prepare the purchases day book from the information below.

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August 2. 14 bags of rice from Mr OgunMagboro at N9,780 per bag.

16. 7 packets of sugar from Calabar Edo Ventures at N5,550 per packet and 3

dozens of onion at N220 per dozen.

19. 5 tons of flour from Apapa and Company at N7,840 per ton.

27. 72½ dozens of egg from Farm Business Investment at N940 a dozen.

5.0 SUMMARY

In this unit, we explain the use of invoice in recording the purchases day book and how the purchases day book is recorded from the invoice when there is discount or not. The relationship between purchases and trade discount is also covered.

6.0 TUTOR-MARKED ASSIGNMENT

Question 1: Ondo-Zaria Investment Limited purchased the following goods on credit in the month of October 2016.

Goods bought from Yola Ventures N620,750 on October 4. On October 17, he received 5 pieces of computer from Wukari Enterprises at N120,560 each. On October 29, Ijebu Global Ventures supplied 24 pairs of shoe at N17,000 per pair; 25 pieces of standing fan at N15,730 each and another 4 standing fan costing N55,750 from IbejuLekki Limited.

You are required to prepare the purchases day book to record the above transactions.

Question 2: The following credit purchases were made in the month of June 2015 by KwaraSagamu Limited

N
June 1 Obinna Sunday 23,080
June 4 Mr. Success 24,450
June 6 Mr. Praise 38,456
June 8 Esther Favour 3,330
June 18 Great Glory Limited 12,000
June 24 Mr. Comfort 51,010
June 29 Adewale Jude 45,450
June 30 Madam Uche 17,400

You are required to prepare the purchases journal of the company for the month of June 2015.

7.0 REFERENCES/FURTHER READINGS

Accounting Technicians Scheme West Africa (2009).Basic Accounting Processes and System Part 1, Study Pack ABINA Publishers

Igben, R. O. (2014), Financial Accounting Made Simple. Lagos: ROI Publishers Oluyombo, Onafowokan (2016) Financial Accounting With Ease (3rd Edition). Magboro:
Kings & Queen Associates

48

UNIT 8: SUBSIDIARY BOOKS: RETURNS INWARDS AND OUTWARDS DAY BOOK

CONTENTS

1.0 Introduction

2.0 Objectives

3.0 Main Content

3.1 Returns inwards journal

3.2 Returns outwards journal

4.0 Conclusion

5.0 Summary

6.0 Tutor-Marked Assignment

7.0 References/Further Readings

1.0 INTRODUCTION

Some business transactions that involves the buying and selling of goods on credit may not be smooth from the beginning of the transaction to the end. There could be one or two hitches after goods have been exchange between the buyer and seller which have to do with the goods bought or sold. This may necessitate the return of goods to seller either in whole or in part. This unit focuses on goods previously sold and bought and later return which is called returns inwards and returns outwards.

2.0 OBJECTIVES

At the end of this unit, you should be able to:

i. Explain returns inwards journal

ii. Discuss returns outwards journal

iii. Prepare return inwards and outwards journal

iv. Explain how discount is treated in returns journal

3.0 MAIN CONTENT

3.1 Returns Inwards Journal

Another name for returns inwards journal is returns inwards day book or sales return book. This is a book used to record goods previously sold to customers but were later returned by the buyer to the seller either in whole or in part probably as a result of:

i. Wrong specification, model, colour etc.

ii. Defect

iii. Disagreement between the buyer and seller that can be traced to either pricing, discount, payment terms etc.

iv. Shortage in quantity, weight and other measuring discrepancies.

v. Government policy.

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When goods are returned by the buyer to the seller, it means that the buyer will not pay for the portion of goods returned to the seller. From the perspective of the seller, it is returns inwards because the good is coming back to the seller, so the seller received the goods. To show that a buyer has returned some good, the seller will record it in a good returns register or any other record created for goods return by buyers. Thereafter, the seller will record it in the returns inwards day book which is one of the accounting books of original entries. The creation and recording of goods returned in the returns inwards journal is an indication that the transaction has been brought into the seller’s books of account.

The returns inwards day book is not an account. However, the double entry book keeping system require that after the preparation of the returns inwards journal, the total of returns inwards journal for a particular period, e.g. weekly, monthly etc. will be debited to returns inwards account, while the affected customers account will be credited to reduce their debt to the seller.

Below are some examples of returns inwards transactions.

Example 1:Abakaliki Enterprises is a big time seller of consumer goods in Lagos state. The following items were returned to the company in the month of February 2016.

February 10 Belinda returned goods worth N220,000

February 19 Happy Bite Ventures sent goods worth N54,000 back

February 27 Nathaniel return N38,020 goods.

Prepare the returns inwards journal to record the above transactions for the month of February 2016.

SUGGESTED SOLUTION TO EXAMPLE 1

Abakaliki Enterprises

Returns Inwards Journal

For the month of February 2012

Date Particulars Amount
10/2/2016 Belinda 220,000

19/2/2016 Happy Bite Ventures 54,000

27/2/2016 Nathaniel 38,020

Total returns inwards for the month debit 312.080
to returns inwards account

Example 2: You are to prepare the returns inwards day book from the following sales returns received by Better Limited International in the month of March 2016.

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March 9. 12 packets of roofing sheet from Ekiti Products at N4,110 per packet and 5 dozens of roofing nail at N220 per dozen.

March 17. 3½ dozens of roofing nail from Bornu Investment at N2,440 a dozen.

March 23. 4 tons of iron rods from Niger Limited for N27,040.

March 31. 16 bags of cement from Agege Ventures at N1,500 each

SUGGESTED SOLUTION TO EXAMPLE 2

Better Limited International

Returns Inwards Day Book

For the month of March 2016

Date Particulars Details Amount ( N)
March 9, Ekiti Products
2016
12 packets of roofing sheet at N 4,110 49,320
per packet
5 dozens of roofing nail at N 220 per 1,100 50,420
dozen.

March 17, Bornu Investment
2016
3½ dozens of roofing nail at N 2,440 a
dozen. 8,540

March 23, Niger Limited
2016
4 tons of iron rods. 27,040

March 31, Agege Ventures
2016
16 bags of cement at N 1,500 each 24,000

Total returns inwards for the month
debit to returns inwards account 110,000

3.2 Returns Outwards Day Book

Returns outwards is from the perspective of a buyer because it represents goods initially bought and later returned by the buyer to the seller. The good is leaving the buyer back to the seller hence it is called return outward. Returns outwards day book is also called returns outwards journal or purchases returns day book.

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Returns inwards journal is used to record goods previously bought for resale but later returned to the supplier due to one reason or the other. These reasons include shortage in quantity, weight and other measuring discrepancies, wrong specification, model, colour etc., defect, disagreement between the buyer and seller that can be traced to either pricing, discount, payment terms etc., and government policy.

The total of goods returned to supplier from the purchases returns day book is transferred to the credit side of the returns outwards account while the individual accounts of the supplier will be debited in the ledger.

Example 3:Awka Mega Business returned the following goods for a week in 2016..

November 7. 20 pairs of hand glove at N50 a pair and 5 pieces of shirt at N650 each to Abeokuta Venture

9. Goods valued N4,450 was returned to Warri Communications.

11. Return good worth N17,250 to Suleja Enterprises as a result of wrong specification.

Prepared the journal to reflect the above

SUGGESTED SOLUTION TO EXAMPLE 3

Awka Mega Business

Returns Outwards Journal

For the week ended November 11, 2016

Date Particulars Details Amount ( N )
6/11/2016 Abeokuta Venture
20 pairs of hand glove at N 50 per 1,000
pair
5 pieces of shirt at N 650 each 3,250 4,250

9/11/2016 Warri Communications 4,450

11/11/2016 Suleja Enterprises 17,250

Total returns outwards for the
month transfer to returns outwards 25,950
account

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3.2.1 Returns with Discount

Like the normal returns, a customer can return goods which he had received trade discount on to the seller. When this occurs, the posting is the same, but the trade discount previously enjoyed on the particular goods been returned should be calculated and removed from the value so as not to overstate the value of the return.

Example 4: Abundant Blessing is a dealer in frozen foods and dairy products. His sales and returns for the month of June 2016 are as follows.

June 6. 4 cartons of Cray fish at N1,250a carton to Joshua.

7 cartons of shrimps to Gbemi at N4,100 per carton.

2 cartons of Cray fish at N1,245 each to Gbemi and he received 10% trade discount

June 13 . Ajayi bought 15 crates of white egg at N880 per crate and 3½ packets of prawns at N7,200 a packet. A discount of 5% was given to him

June 20 6 cartons of Cray fish was sold to Debo for N7,440. He also bought 2 packets of prawns at N7,225 per packet and 5 cartons of shrimps at N4,150 a carton. Being an old customer, Abundant Blessing gave him 15% discount and this encourage him to buy a carton of white egg for N880 but this do not qualify for discount.

June 24. Folake bought a carton each of Cray fish, prawn, white egg and shrimps at same price with Joshua, Ajayi, Debo and Gbemi respectively. Being a woman with the ability to negotiate, she received 10% trade discount.

June 28, Gbemi returned 2 cartons of shrimps.

June 30, Ajayi returned 4 crates of white egg and a packet of prawns. Show the

Prepare the sales day book and the returns inwards journal of Abundant Blessing to record the above.

SUGGESTED SOLUTION TO EXAMPLE 4

Abundant Blessing

Sales Day Book

For the month of June 2016

Date Particulars Details Amount ( N )
6-6-2016 Joshua
4 cartons of cray fish at N 1,250 a 5,000
carton

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13-6-2016 Gbemi
7 cartons of shrimps at N 4,100 per
carton 28,700
2 cartons of cray fish at N 1,245 each 2,490
31,190
Less 10% trade discount 3,119 28,071

20-6-2016 Ajayi
15 crates of white egg at N 880 per
crate 13,200
3½ packets of prawns at N 7,200 a
packet 25,200
Less discount of 5% 38,400 36,480
1,920

24-6-2016 Debo
6 cartons of cray fish 7,440
2 packets of prawns at N 7,225 per
packet 14,450
5 cartons of shrimps at N 4,150 a
carton 20,750
42,640
Less 15% discount 6,396
36,244
A carton of white egg 880 37,124

4-6-2014 Folake

A carton of cray fish 1,250
A carton of prawn 7,200
A carton of white egg 880
A carton of shrimps 4,100
13,430
Less 10% trade discount 1,343 12,087

Total Sales for the month transfer to 118,762
sales account

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Abundant Blessing

Returns Inwards Journal

For the month of June 2016

Date Particulars Details Amount ( N )
Gbemi
June 28
2 carton of shrimps at N 4,100 each 8,200
Less 10% trade discount 820 7,380

June 30 Ajayi
4 crates of white egg at N 880 per
crate 3,520
A packet of prawns
7,200

Less 5% discount 10,720
536
10,184

Total returns inwards for the month
transfer to returns inwards account 17,564

Note:The prices used are the same with those given in the question when the goods were sold. Likewise the trade discounts rate.

4.0 CONCLUSION

Since business decisions are not cast in gold, it therefore suffice to expect correction or amendments to purchase and sale after the goods have been delivered to the buyer. This leads to preparation of returns inwards and outwards day books to record goods sold but later return by the buyer to the seller. To the seller, it’s a return inwards, while it is return outwards to the buyer.

SELF ASSESSMENT EXERCISE
1. What do you understand by returns inwards?

2. What are the practical things that can give rise to both return inwards and return outwards?

3. You are required to prepare returns inwards day book from the information below.

April 1 Mr. Praise 18,200
April 4 Mr. Progress 21,450
April 10. 16 bags of cement from Chuks at N 9,800 each
April 20. 12 packets of roofing sheet from Paul at N 4,900 per packet
April 25 Mr. Comfort 62,440
April 29 Madam Nkem 18,365
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5.0 SUMMARY

This unit explains the concept of returns inwards, returns outwards and conditions that could give rise to both returns. It is also used to prepare the sales returns day book, purchases returns day book and the relationship between returns and discount.

6.0 TUTOR-MARKED ASSIGNMENT

Question 1: What do you understand by returns outwards?

Question 2: How do you record goods returns for which discount was received when sold?

Question 3: Great People Ventures returns to supplier for the month of June 2016 is as stated below.

June 6. 5 tons of Iron rods to ABC Limited for N 17,840
June 11 Great Glory Limited N 80,000
June 18. 51½ dozens of roofing nail to Emmanuel at N 240 a dozen
June 19 Okey Cynthia N 1,080
June 24 James Investment N 39,547
June 29 Mercy Business N 77,550

Prepare the returns outward journal from the above information.

7.0 REFERENCES/FURTHER READINGS

Accounting Technicians Scheme West Africa (2009).Basic Accounting Processes and System Part 1, Study Pack ABINA Publishers

Igben, R. O. (2014), Financial Accounting Made Simple. Lagos: ROI Publishers Oluyombo, Onafowokan (2016) Financial Accounting With Ease (3rd Edition). Magboro:
Kings & Queen Associates

56

UNIT 9: SUBSIDIARY BOOKS: JOURNAL

CONTENTS

1.0 Introduction

2.0 Objectives

3.0 Main Content

3.1 Journal or Journal Proper

4.0 Conclusion

5.0 Summary

6.0 Tutor-Marked Assignment

7.0 References/Further Readings

1.0 INTRODUCTION

We have examined four different types of day books or journals in the last three units (units 6 to 8) namely sales day book, purchases day book, return inwards day book and returns outwards day book. These four journals treated so far are used to record credit transactions only. None of them can be used to record transfer of property since it is not a credit transaction. This unit explains journal or journal proper, how it is used for other transactions excluding credit sales, credit purchase and returns.

2.0 OBJECTIVES

At the end of this unit, you should be able to:

i. Define a journal

ii. Explain the importance of journal, and

iii. Know how to prepare journal

3.0 MAIN CONTENT

3.1 JOURNAL OR JOURNAL PROPER

Journal or journal proper is one of the books of original entry that is used to record any transaction which cannot be conveniently recorded or classified into any of the other subsidiary books. Transactions that cannot be recorded in the sales day book, purchases day book, returns inward day book, returns outwards day book, cash book, two column cash book, three column cash book and petty cash book due to their nature which must pass through the accounting books of original entries are recorded through the journal.

Any transaction that cannot be recorded in other books of original entry as a result of their nature will be recorded in the journal before they are posted to their relevant accounts in ledger.

Transactions that are recorded in the journal include:

i. Transfers from one account to another

ii. Purchase and sale of non-current assets on credit

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iii. Adjustments to accounts

iv. Correction of accounting errors

v. Transfer of personal property to a company

vi. Recording of opening and closing entries

vii. Recording of special transactions like revaluation of assets, creation of goodwill etc.

The recording in the journal is a direction as to how each account will be treated in the ledger. Hence the journal tells us what to do in the ledger. i.e. a debit in the journal will also be a debit in the ledger. Each record in the journal is followed with a narration to explain the purpose of the posting.

Journal format is presented below.

International Business Limited

Journal

Date Particulars Debit Credit
xx/xx/xxxx Account debited XXXX
Account credited XXXX
Narration

Example 1: A company – Mercy Investment - bought a motor vehicle on credit for N850,000 from Peace Associates on August 24, 2012. Prepare Mercy Investment journal for this transaction.

SUGGESTED SOLUTION TO EXAMPLE 1

Mercy Investment

Journal

Date Particulars Debit Credit
24/8/2012 Motor vehicle account 850,000
Peace Associates account 850,000
Being motor vehicle bought on credit
from Peace Associates.

Note: The meaning of the above journal is that motor vehicle account should be debited with N850,000 in the ledger while the seller’s account – Peace Associates - will be credited with the same amount.

58

Example 2: Ago-Iwoye Ventures set up a business on June 1, 2014 with his personal properties which he now transfer to the company as follows: Building N650,000, Motor vehicle N380,000, Cash N12,500 and Cash at bank N18,240. A day earlier, he bought some goods on credit worth N625,000. Draw up a journal to record the above and also determine his capital.

SUGGESTED SOLUTION TO EXAMPLE 2

Ago-Iwoye Ventures

Journal

Date Particulars Debit Credit
1/6/2014 Building account 650,000
Motor vehicle account 380,000
Cash account 12,500
Bank account 18,240
Creditors account 625,000
Capital account (balancing figure) 435,740
Being recording of opening entry for
Ago-Iwoye Ventures.

Note: The capital can be derived by adding all the assets together and deducting the liability.

Before the capital was derived, the total assets was N1,060,740 while the liability is

N625,000. The difference of N435,740 form the capital.

4.0 CONCLUSION

Journal is very important because it serves as the book of original entry for recording accounting transactions that cannot be posted to other book of prime entries because of their nature. Transactions such as recording of opening and closing entries, correction of accounting errors, purchase and sale of non-current assets on credit, adjustments to accounts, transfer of personal property to a company and recording of special transactions like revaluation of assets, creation of goodwill etc. are posted to the journal first before they are transferred to their relevant accounts in the ledger.

SELF ASSESSMENT EXERCISE

1. Mr. David Ibrahim started his business on June 1, 2011 with the following provided by him on same day.

N
Cash in hand 40,000
Cash at bank 240,000
Stock 208,000
Motor vehicle 120,500

You are to enter the above transaction or event in a journal.

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5.0 SUMMARY

This unit was used to explain the definition and uses of journal proper. It also contains different questions with solution to discuss and show how journal is used in recording opening entries of a new company, purchase of non-current assets on credit and transfer of personal property from a business owner to his or her company.

6.0 TUTOR-MARKED ASSIGNMENT

Question 1: What are the transactions that can be recorded in a journal proper

Question 2: Open a journal to record the information below for a new company and

determine the capital.

FurnitureN135,000

Building N810,000

Cash N50,500

Cash at bank N9,000

Goods on credit N950,000.

7.0 REFERENCES/FURTHER READINGS

Accounting Technicians Scheme West Africa (2009).Basic Accounting Processes and System Part 1, Study Pack ABINA Publishers

Igben, R. O. (2014), Financial Accounting Made Simple. Lagos: ROI Publishers Oluyombo, Onafowokan (2016) Financial Accounting With Ease (3rd Edition). Magboro:
Kings & Queen Associates

60

UNIT 10: SUBSIDIARY BOOKS: SINGLE AND TWO COLUMNCASH BOOKS

CONTENTS

1.0 Introduction

2.0 Objectives

3.0 Main Content

3.1 Cash Book

3.2 Two Column Cash Book

4.0 Conclusion

5.0 Summary

6.0 Tutor-Marked Assignment

7.0 References/Further Readings

1.0 INTRODUCTION

This unit is a continuation from units 6 to 9 where the day books and journal proper were treated. In addition to the day books and journal proper, some of the subsidiary books of accounts that are used to record only cash transactions - including physical cash and transaction though the banks – are considered in this unit. The four subsidiary books that fall into this category are the cash book, two column cash book, three column cash book and the petty cash book. However, this unit focuses on cash book and the two column cash book.

2.0 OBJECTIVES

At the end of this unit, you should be able to:

i. Define and prepare cash book

ii. Explain and prepare two column cash book

iii. Understand the concept of ‘contra entry’

3.0 MAIN CONTENT

3.1 CASH BOOK

The cash book is a book of original entry used to record all cash transactions. The cash transactions recorded in the cash book can be for cash purchases, cash sales, receipt of cash from customers, payment of cash to supplier, acquisition of properties by cash and all other transactions that involved the receipt and payment of cash.

The cash book is divided into two sides, the left side records all cash receipts while the right side records all cash payments. The left side of a cash book is called debit side while the credit side is the right side. At the end of a particular period e.g. daily, weekly, monthly, the postings on the debit side of the cash book is added together likewise the credit side. It is expected that the debit side (cash received) at the end of the period should be greater than the credit side (cash payment). The difference will be the cash balance that will be used for the

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business for the next period. This cash balance is referred to as balance carried down or balance c/d in the current period and balance brought down or balance b/d for the next period.

Example 1: The following cash transactions relate to Ayuba Ventures for the month of January 2015.

N
Jan 2. Sales 25,000
4. Paid rent 4,000
5. Purchases 12,500
10. Electricity bills 2,000
12. Transport expenses 250
22. Sales 14,110
26. Purchases 6,230

You are to prepare the cash book for Ayuba Ventures.

SUGGESTED SOLUTION TO EXAMPLE 1

Ayuba Ventures
Cash Book
For the month of January 2015
Debit (Dr) Credit (Cr)
Date Particulars Folio Amount Date Particulars Folio Amount
Jan 2 Sales 25,000 Jan 4 Rent 4,000
Jan 22 Sales 14,110 Jan 5 Purchases 12,500
Jan 10 Electricity 2,000
Jan 12 Transport 250
Jan 26 Purchases 6,230
Jan 31 Balance c/d 14,130
39,110 39,110
Feb 1 Balance b/d 14,130

Example 2: Prepare a cash book from the following information for the month of May

2016. N
May 1. Balance of cash in hand 14,130
2. Received cash from P. Ade a credit customer 3,600
4. Paid rent for the month 1,600
5. Paid cash to L. Lovelyn for goods bought on credit 3,200
7. Postage stamp by cash 150
9. Cash sales 22,110
10. Cash purchases 15,235
12. Cash received from his brother D. Bright as a loan 10,000
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18. Paid O. Ayodele on account of credit purchases 6,250
19. A credit customer Bonik Venture paid cash 14,000
26. Paid wages to shop clerk 4,500
28. Paid electricity bills 1,200
29. Pay security man cash for the month 2,500
SUGGESTED SOLUTION TO EXAMPLE 2
Cash Book
Dr.For the month of May 2016 Cr.
Date Particulars Folio Amount Date Particulars Folio Amount
May 1 Balance b/d 14,130 May 4 Rent 1,600
May 2 P. Ade 3,600 May 5 L. Lovelyn 3,200
May 9 Sales 22,110 May 7 Postage stamp 150
May 12 D. Bright -loan 10,000 May 10 Purchases 15,235
May 19 Bonik Venture 14,000 May 18 O. Ayodele 6,250
May 26 Wages 4,500
May 28 Electricity 1,200
May 29 Security 2,500
May 31 Balance c/d 29,205
63,840 63,840
June 1 Balance b/d 29,205

3.2 TWO COLUMN CASH BOOK

As a business grows, the owner(s) will realise the need to open a bank account where the organisation’s money can be kept. To be able to monitor the movement of money to and from the bank, a two column or double column cash book will be prepared. Two column cash book is, therefore, a form of cash book used in recording cash and bank transactions in the same book and in the order in which they occur.

The bank transactions are recorded under separate column likewise the cash transactions in a different column in a two column cash book.

3.2.1 Cash movement to and from bank

A distinguishing feature of double column cash book is that it shows at a glance the movement or transfer of cash or money from the company’s office to the bank on one side and withdrawal of cash from the bank to the office. These movements are treated in a special way in the two column cash book as follows:

i. When cash is withdrawn from the bank to the office Debit - The cash column

Credit - The bank column

This entry will reduce the cash in the bank and increase the cash in the office.

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ii. When cash is removed from the office and paid into the bank

Debit - The bank column

Credit - The cash column

This entry will increase the money in the bank while the cash in the office will reduce.

3.2.2 Contra entry

When any of the above entries in 3.2.1 occurred, it will lead to “contra entry” and it is represented by letter “C” in the folio columns. A contra entry is any transaction that has been recorded twice in an account through a debit and a credit entry in the same account. It means that ‘contra entry’ cannot be found in any of the journals and cash book, but it can be found in the two column cash book, three column cash book and the petty cash book. ‘Contra entry’ transactions are not posted to the ledgers again.

The format of a two column cash book is presented below.

ABC Limited
Two Column Cash Book
Dr For the month of October 2016 Cr

Date Particulars Folio Cash Bank Date Particulars Folio Cash Bank

Example 3: You are to prepare a two column cash book from the information given below for Eno Investments for the month of November 2015.

N

Nov. 1. Bank balance 23,500
1. Cash balance 500
2. Cash sales 3,000
4. Cheque from A. Bunmi 2,500
5. Rent paid by cash 1,000
8. Paid cash to bank 1,200
18. Cash sales paid directly to bank 4,000
28. Paid P. Peters by cheque 5,500
30. Withdrawn cash from bank 22,200
30. Paid wages in cash 5,720

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SUGGESTED SOLUTION TO EXAMPLE 3
Eno Investments
Two Column Cash Book
Dr For the month of November 2015 Cr

Date Particulars Folio Cash Bank Date Particulars Folio Cash Bank
1 Balance b/d 500 23,500 5 Rent 1,000
2 Sales 3,000 8 Bank C 1,200
4 A. Bunmi 2,500 28 P. Peters 5,500
8 Cash C 1,200 30 Cash C 22,200
18 Sales 4,000 30 Wages 5,720
30 Bank C 22,200 30 Balance c/d 17,780 3,500
25,700 31,200 25,700 31,200
Dec 1 Balance b/d 17,780 3,500
4.0 CONCLUSION

Two of the subsidiary books of accounts used to record cash and bank transactions excluding discounts are the cash book and the two column cash book. The cash transactions recorded in the above subsidiary books can be for cash purchases, cash sales, receipt of cash from customers, payment of cash to supplier, acquisition of properties by cash and all other transactions that involved the receipt and payment of physical cash and transactions through the bank.

SELF ASSESSMENT EXERCISE

From the following information write up two column cash book of Holy Hand Ventures for the month of September 2015.

3. Start business with cash of N70,000 and cheque of N32,500.

He opened a bank account same day where the cheque was lodged.

4. Paid shop rent by cash N2,400

8. Withdrawn N5,000 from bank to office

8. Sales by cheque N8,250 Sales by cash N12,200
9. Paid cash of N10,000 to bank

16. Paid S. Stores a supplier by cheque N9,950.

20. Cash sales N15,000 Cash purchase N5,800

22. Purchase by cash N10,120 Purchase by cheque N2,000

25. Mr. Steven a supplier received N8,200 cash.

28. O. Ade a customer paid his bill of N9,200 by cheque

29. Paid staff salary by cash N4,230

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5.0 SUMMARY

Two subsidiary books of accounts that are used to record only cash transactions including physical cash and transaction though the banks were explained in this unit. The subsidiary books that fall into this category namely the cash book and two column cash book were define and discussed with appropriate questions including the concept of ‘contra entry’.

6.0 TUTOR-MARKED ASSIGNMENT

Question 1:

The following information has been extracted from the book of All State Ventures for February 2016.

1 Balance at bank N1,083.

1 Drew and cashed cheque for N500.

1 Bought for cash 14 model coats for N282.

2 B. Aluko paid by cheque N100 on account.

5. Sold for cash two costumes at N36 and N33 respectively.

5 Paid in cash, wages N72 and office expenses N10

9 Paid by cheque, H. Abba account N258

10 Cash sales to date N76.

12 Paid by cheque M. Harrison account N300.

13 Paid carriage in cash N33.

18. Paid by cheque B. Banjo account N82

18. Gave H. Abba a cheque on account N100

18. Cash sales for the week N190.

18. B. Daodu Paid N250 by cheque.

21. Purchased for cash 7 Packets office pins at N1.17 per packets.

22. Paid cash into bank N100

You are required to prepare a two column cash book to record the above transactions

Question 2: What is a contra entry? Explain how you will treat contra entry transaction in a two column cash book.

7.0 REFERENCES/FURTHER READINGS

Accounting Technicians Scheme West Africa (2009).Basic Accounting Processes and System Part 1, Study Pack ABINA Publishers

Igben, R. O. (2014), Financial Accounting Made Simple. Lagos: ROI Publishers Oluyombo, Onafowokan (2016) Financial Accounting With Ease (3rd Edition). Magboro:
Kings & Queen Associates

66

UNIT 11: SUBSIDIARY BOOKS: THREE COLUMN AND PETTYCASH BOOKS

CONTENTS

1.0 Introduction

2.0 Objectives

3.0 Main Content

3.1 Three Column Cash Book

3.2 Petty Cash Book

4.0 Conclusion

5.0 Summary

6.0 Tutor-Marked Assignment

7.0 References/Further Readings

1.0 INTRODUCTION

This unit is a continuation from unit 10 where two (single and two column cash books) of the four subsidiary books of accounts that are used to record only cash transactions - including physical cash and transaction through the banks were treated. The remaining two subsidiary books namely three column cash book and the petty cash book are considered in this unit.

2.0 OBJECTIVES

At the end of this unit, you should be able to:

i. Discuss and prepare three column cash book

ii. Explain and prepare petty cash book

iii. Understand petty cash and imprest system

3.0 MAIN CONTENT

3.1 THREE COLUMN CASH BOOK

The three column cash book is one of the subsidiary books of account used to record cash and bank transactions in addition to discounts received and discount allowed. This type of cash book combine discount column on both debit and credit sides to the cash and bank columns. Hence, each side of the cash book has three columns for cash, bank and discount. The discount allowed column is on the debit side, while discount received column is on the credit side. It is cash discount that is recorded in the discount columns and not trade discount.

Cash discount is an inducement given to debtors (credit customers) for paying their debt on time or promptly within the specified time frame or period. It means that, a credit customer can enjoy both the trade discount and cash discount provided the terms for the discounts as specified by the seller are met.

67

The discount columns in a three column cash book are not part of the double entry system, they are just a memorandum to make the book tidy in recording receipts and payments where cash discounts have been given and received.

The total of the discount received column will be transfer to the credit side of discount received account in the ledger, while the discount allowed account in the ledger will be debited with the total of discount allowed.

Example 1: From the following information write up three column cash book of IshayaIshola Business Palace for the month of March 2016.

2. Start business with cash of N50,000 and cheque of N20,000.

4. Purchase by cash N10,000

6. Paid shop rent by cash N2,400

8. Sales by cheque N8,250 Sales by cash N12,200

10. Paid cash of N10,000 to bank

14. Paid S. Stores a supplier by cheque N9,800 after deducting cash discount of N200.

16. O. Ade a customer paid his bill of N10,000 by cheque, subject to cash discount of 3

percent.

18. Withdrawn N5,000 from bank to office.

22. Mr. Steven a supplier received N8,200 in full settlement of N8,500 invoice by cash.

25. Paid staff salary by cash N4,230

28. Cash sales N15,000 Cash purchase N5,800 Cheque purchases N2,410

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SUGGESTED SOLUTION TO EXAMPLE 1
IshayaIshola Business Palace
Three Column Cash Book
Dr. For the month of March 2016 Cr.
Date Particulars Discount Cash Bank Date Particulars Discount Cash Bank
Allowed Received
2 Capital 50,000 20,000 4 Purchases 10,000 2,700
8 Sales 12,200 8,250 6 Rent 2,400
10 Cash C 10,000 10 Bank C 10,000
16 O. Ade 300 9,700 14 S. Stores 200 9,800
18 Bank C 5,000 18 Cash C 5,000

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28 Sales 15,000 22 Steven 300 8,200
25 Salary 4,230
28 Purchases 5,800 2,410
31 Bal. c/d 41,570 28,040
300 82,200 47,950 500 82,200 47,950
Bal. b/d 41,570 28,040

3.2 PETTY CASH BOOK

Petty cash payments are small payments given out for some small expenses that occur almost on daily basis in an organisation e.g. transportation, fuel. This arrangement is put in place to relieve the main cashier from attending to too numerous payments (big and small). Hence a junior cashier is usually designated as petty cashier to handle the payment of small expenses.

The cash provided for the petty cashier is called petty cash, while the book used to record the petty cash transactions is called petty cash book.

3.4.1 Petty Cash and Imprest System

The petty cash imprest system operates when the main cashier gives the petty cashier enough money that is sufficient to cover petty expenses for a given period of time e.g. a week or a month. At the end of the stated period, the petty cashier gives the details of how the money was used and gets a re-imbursement or replenishment equal to the amount already spent from the main cashier.

By this system, the petty cashier will always have his imprest at any point in time made up of amount already spent and the balance with him. With imprest arrangement, the petty cashier balance at beginning of each period will always equal to the imprest float.

Example 2: The following is a summary of petty cash transactions of National Open Business for the month of May 2014. The business maintains a petty cash float of N10,000

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N
May 1. Received float 10,000
4. Paid transport expenses 480
5. Paid for vehicle fuel 690
7. Wole. K – Ledger account 850
10. Stationery 1,020
11. Postage 700
12. Stationery 500
13. Vehicle fuel 400
20. Victor A. Ledger account 1,500
24. Vehicle fuel 750
30. Envelope 250
31. Postage stamp 480

You are required to prepare a petty cash book with five analysis column for motor expenses, postage expenses, stationery expenses, transport expenses and ledger account.

SUGGESTED SOLUTION TO EXAMPLE 2

National Open Business

Petty Cash Book

For the month of May 2014

Receipt Date Particulars Petty Total Motor Postage Stationery Transport Ledger
cash expenses account
voucher
numberNNNNNN 10,000 1 Cash float

4 Transport 480 480
5 Vehicle fuel 690 690
7 Wole, K 850 850
10 Stationery 1,020 1,020 11
Postage 700 700 12
Stationery 500 500 13
Vehicle fuel 400 400 20
Victor, A. 1,500 1,500 24
Vehicle fuel 750 750
30 Envelope 250 250 31
Postage stamp 480 480
7,620 1,840 1,180 1,770 480 2,350
7,620 31 Cash
31 Balance c/d 10,000
17,620 17,620
10,000 June 1 Bal b/d
70

4.0 CONCLUSION

The subsidiary book of accounts used to record cash and bank transactions in addition to discount received and discount allowed is the three column cash book. It has both debit and credit sides which contains three columns for cash, bank and discount in each side of the book. The petty cash book is used to record cash transactions that occur almost on daily basis such as fuel and transport.

SELF ASSESSMENT EXERCISE
1. The cash transactions of Mr. John Toluwalase, a trader, are given below.

May 1 Cash at bank N 465.03
Cash in hand N 28.00
3 Drew cheque for petty cash N 70.00

5 Received from Ade, cheque in settlement of his account N652 less 5% discount

5 Paid Sola’saccount N518, less 2½% discount

5 Sold for cash goods worth N206

8 Transferred to current account from deposit account N1,000 Paid account of R. Davis N1,482 less discount 2½ %

10 Drew cheque for petrol and motor repairs N179.50

17 Drew cheque for stationery N77

20 Sold for cash 30 boxes of matches at N5 a box

23 Cash sales N400

24 Paid into bank N756

26 Drew cheque, personal drawings N100

You are required to prepare his three column cash book

2. What is an imprest in a petty cash system?

5.0 SUMMARY

The subsidiary books of accounts that are used to record cash and bank transactions including cash discount received and discount allowed, and the book used to record small payments that occurs almost on daily basis were explained in this unit. The two subsidiary books namely three column cash book and the petty cash book were define and discussed with appropriate questions including the relationship between petty cash and imprest system.

6.0 TUTOR-MARKED ASSIGNMENT

Question 1:ChineduIgbala Global Company maintain an imprest system of N8,000.00 per month. The transactions for the month of April, 2016 are as follows:

April 4. Petty cash in hand N 25
Received cash to make up the imprest
Bought stamps N 85.

5. Paid transports fare N125 Telegrams N145

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Bought big note books for office N550

Paid cleaner N65

6. Paid carriage on small parcels N270

9. Courier service N880 Entertainment for the office N145,

16. Towing of vehicle N257

Water purchased for the canteen 1,000 gallons at N0.08 per gallon. Paid office cleaner N65

18. Purchase of bulb N217.30 Envelopes for the office N289.10

Paid for eraser, biro and pencils N289.45 Electricity bill N145.30

19. Water purchases 5,000 gallons at N0.07 per gallon Welding of door N173.50

20. Dispatch rider’s medical bill N125 Cleaner’s wages N65

21. Entertainment for the M.D N186.30

Paid new driver’s license for M.D N60

22. Tea and biscuits for the board’s meeting N135.70

26. Repairs of security light N65.30

28. Courier service N880

Traffic offence fine paid N120

29. Casual wages N385 Electricity bill paid N145.10 Carriage inwardsN50.
30. Physical cash count N400.30

Required: Prepare a petty cash book with five analysis column for postage and stationers, travelling expenses, repairs and maintenance, medical, general expenses.

Question 2: The following information has been extracted from the book of Bose Livingstone Investment for February 2009.

1 Balance at bank N683.

1 Drew and cashed cheque for N500.

1 Bought for cash 14 model coats for N282.

2 B. Aluko paid by cheque N100 on account. Paid cheque into bank.

5. Sold for cash two costumes at N36 and N33 respectively.

5 Paid in cash, wages N72 and office expenses N10

9 Paid by cheque, H. Abba accountN258 less 5% discount.

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10 Cash sales to date N76.

12 Paid by cheque M. Harrison account N300.

13 Paid in cash carriage N33.

18. Paid by cheque B. Banjo account N82

18. Gave H. Abba a cheque on account N100

18. Cash sales for the week N190.

18. B. Daodu Paid N250 by cheque. Paid cheque into bank.

21. Purchased for cash 7 Packets office pins atN1.17 per packets.

22. Paid cash into bank N100

You are required to prepare a three column cash book to record the above transactions

7.0 REFERENCES/FURTHER READINGS

Accounting Technicians Scheme West Africa (2009).Basic Accounting Processes and System Part 1, Study Pack ABINA Publishers

Igben, R. O. (2014), Financial Accounting Made Simple. Lagos: ROI Publishers Oluyombo, Onafowokan (2016) Financial Accounting With Ease (3rd Edition). Magboro:
Kings & Queen Associates

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UNIT 12: DOUBLE ENTRY BOOK-KEEPING SYSTEMS

CONTENTS

1.0 Introduction

2.0 Objectives

3.0 Main Content

3.1 Double Entry System

3.2 Ledgers

3.3 Classification of ledger

3.4 Account

3.5 Classification of Account

3.6 Preparation of account

4.0 Conclusion

5.0 Summary

6.0 Tutor-Marked Assignment

7.0 References/Further Readings

1.0 INTRODUCTION

On completion of subsidiary books of accounts as discussed in the last six units – unit 6 to 11, the next thing is to proceed to obey the double entry principle. This is actualized by preparing ledgers to reflect transactions of the same nature, type, ownership or kind in their respective accounts. This unit will define and explain the processes, procedures and the rules to follow in preparing the accounts and how ledgers and accounts are classified.

2.0 OBJECTIVES

At the end of this unit, you should be able to:

i. Explain the concept of double entry system

ii. Define a ledger

iii. Discuss different classifications of ledger

iv. Define an account

v. Explain account classification

vi. Prepare accounts in a ledger in compliance with double entry principle

3.0 MAIN CONTENT

3.1 DOUBLE ENTRY SYSTEM

The double entry system signifies a way of recording all accounting transactions twice in the books of account. It means that a transaction will appear twice in the accounting books. This is achieved through the double entry principle. The double entry principle states that ‘for every debit entry for a transaction, there must be a corresponding credit entry for the same transaction, and for every credit entry for a transaction, there must be a corresponding debit entry for the same transaction’.

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The implication of the double entry is that for any transaction, at least two parties will be involved. That is, the giver and the receiver. The double entry system therefore concludes that a receiver should be debited ‘for receiving’ while the giver should be credited ‘for giving’. The debiting and crediting to ensure that double entry system is followed are done in the ledger.

3.2 LEDGER

Ledger is the principal book of accounts where the double entry principle is completed. The ledger contains various accounts which are part of the double entry. Each account in the ledger is divided into two parts namely debit side and credit side. The debit side is always on the left while the credit side is on the right.

3.3 CLASSIFICATION OF LEDGER

In some big organisations where transactions are numerous, the ledgers may be divided into suitable classes. However, the ledgers can be classified into two. namely, personal ledger and impersonal ledger.

3.3.1 Personal ledger

Personal ledgers are ledgers that contain accounts in the names of persons, organisations and firms. It can be divided further into:

3.3.1.1 Sales ledger

This contains the accounts of those customers who buy goods on credit and owe the company. It is also called debtors ledger.

3.3.1.2 Purchases ledger

Purchases ledger contains supplier’s accounts. Suppliers are those that the company bought goods or received service from on credit and have not paid for them. It can also be called creditors ledger.

3.3.1.3 Private ledger

This ledger contains the accounts of the business owner e.g. capital, drawings, bank and loan account. These accounts are kept confidential due to its sensitive nature.

3.3.2 Impersonal ledger

They are ledgers containing non personal accounts. They contain accounts other than those in the names of person, organisations and firms. Impersonal ledger can be further classified into two:

3.3.2.1 Real ledger

It contains the accounts of properties and other possessions of the company which can be seen and touched. e.g.Motor vehicle, furniture, fittings, land, building, office equipment, plant and machineries.

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3.3.2.2 General or nominal ledger

This contain other accounts that cannot be found in other ledgers especially those accounts used in recording income, expenditure, gain and losses of a business. e.g. Purchases account, transport and travelling expenses account.

3.4 ACCOUNT

According to Garbutt (1984), an account is a ledger record, in a summarised form, of all the transactions that have taken place with the particular person or value specified. Soyode (1980) defines an account as the systematic mechanism for the tabulation of monetary increases and decreases in individual assets and equities.

An account can therefore be defined as part of the ledger that records transactions from the books of original entries in the order in which they occurred and form part of the double entry system.

3.5 CLASSIFICATION OF ACCOUNTS

The classification of accounts follows the same pattern as the ledger with the exception of private ledger. Accounts can be divided into two namely: personal account and impersonal account

3.5.1 Personal account

These are accounts of person and organisations that the company transacts business with. e.g.

Debtors account, creditors account.

3.5.2 Impersonal account

It consists of accounts of non person(s) and it is sub divided into two.

3.5.2.1 Nominal account

It records the accounts of income and expenditure of the business. e.g. Sales account, purchases account, wages account.

3.5.2.2 Real account

They are accounts that record the company’s properties and possession that is expected to last for more than one accounting year. e.g. Plant account, machinery account, equipment account, motor vehicle account.

3.6 PREPARATION OF ACCOUNT

To follow the double entry principle will require the preparation of two accounts. One will be a debit entry and the other a credit entry. A typical account is presented below.

Debit Account Name Credit
Date Particulars Folio Amount Date Particulars Folio Amount

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A careful examination of the account above shows that it is divided into two equal parts, and each part has same type of heading. The left side is the debit (Dr.) side, while the right side is the credit (Cr.) side. The date a transaction occurred will be written under the date column.

Particulars or details: The space is for recording the description of transaction and also, to show where the other (corresponding) entry will be recorded in another account to fulfil the double entry principle of account.

Folio: This shows the page of the source document from where the posting originate or a page in the day book or cash book etc.

Amount: The value of the transaction is recorded here and it can be in any currency. However, two different currencies cannot be merged under an account. But a currency can be converted to the other currency being used to record other transactions.

3.6.1 Guides to preparation of accounts

Though, the preparation of accounts is very simple, but to make it simpler, a guide is set out below and is applicable to any type of accounts at any level.

3.6.1.1 Assets

For all types of asset including non-current and current assets

Dr. Assets account Cr.

Increase xx

Decrease xx

The above means that, when assets increase in value either by buying it in cash or on credit, the assets account should be debited with the increase. However, when assets value reduces, the assets account should be credited.

3.6.1.2 Liabilities

It includes capital or equity, non-current and current liabilities.

Dr Liabilities account Cr

Decrease xx Increase xx

The above means that, when liabilities increase in value the liabilities account should be credited with the increase. However, when liabilities value reduces, the liabilities account should be debited.

3.6.1.3 Expenses

For expenses incurred either paid for or not

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Dr Expenses account Cr

Increase xx

Decrease xx

3.6.1.4 Income

This is for all forms of income including credit sales and cash sales.

Dr Income account Cr

Decrease xx Increase xx

Example 1: A company bought furniture by cash for N325,000. Open the furniture account

SUGGESTED SOLUTION TO EXAMPLE 1

Dr Furniture account Cr

Cash 325,000

Example 2: A firm purchased office equipment by cash on May 24, 2011 for N111,000. Record this in office equipment account.

SUGGESTED SOLUTION TO EXAMPLE 2

Dr Office equipment account Cr
Date Particulars Folio Amount Date Particulars Folio Amount

24/5/11

Cash

111,000

Example 3: A business firm sold goods worth N50,000 on January 2, 2015 in cash. Open the sales account.

SUGGESTED SOLUTION TO EXAMPLE 3

Dr Sales account Cr
Date Particulars Folio Amount Date Particulars Folio Amount

2/1/15 Cash

50,000

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Example 4:Mr. Moses Goodluck commenced business with N250,000 cash on June 1, 2015 and presented the following for the month.

N
June 2. Paid rent 20,000
June 6. Purchases 85,000
June 12. Sales 217,500
June 16. Paid wages 4,220
June 18. New motor vehicle 220,000
June 24. Sales 412,345
June 26. Purchases 108,000
June 30. Electricity bill 3,305

All the above transactions are by cash. Prepare the cash book and transfer to the ledgers.

SUGGESTED SOLUTION TO EXAMPLE 4
Mr. Moses Goodluck
Cash Book
Dr. For the month of June 2015 Cr.
Date Particulars Folio Amount Date Particulars Folio Amount
June 1 Capital 250,000 June 2 Rent 20,000
June 12 Sales 217,500 June 6 Purchases 85,000
June 24 Sales 412,345 June 16 Wages 4,220
June 18 Motor vehicle 220,000
June 26 Purchases 108,000
June 30 Electricity bill 3,305
Balance c/d 439,320

879,845 879,845
Balance b/d 439,320

Ledgers
Dr Capital account Cr
Date Particulars Folio Amount Date Particulars Folio Amount
Balance c/d 250,000 June 2 Cash 250,000

250,000 250,000
Balance b/d 250,000

79

Dr Sales account Cr
Date Particulars Folio Amount Date Particulars Folio Amount
June 12 Cash 217,500
Balance c/d 629,845 June 24 Cash 412,345
629,845 629,845
Balance b/d 629,845
Dr Rent account Cr

Date Particulars Folio Amount Date Particulars Folio Amount
June 2 Cash 20,000Balance c/d 20,000
20,000 20,000
Balance b/d 20,000

Dr Purchases account Cr
Date Particulars Folio Amount Date Particulars Folio Amount
June 6 Cash 85,000
June 26 Cash 108,000 Balance c/d 193,000

193,000 193,000
Balance b/d 193,000
Dr Wages account Cr
Date Particulars Folio Amount Date Particulars Folio Amount
June 16 Cash 4,220 Balance c/d 4,220
4,220 4,220
Balance b/d 4,220

Dr Motor vehicle account Cr
Date Particulars Folio Amount Date Particulars Folio Amount
June 18 Cash 220,000 Balance c/d 220,000
220,000 220,000
Balance b/d 220,000

Dr Electricity account Cr
Date Particulars Folio Amount Date Particulars Folio Amount
June 30 Cash 3,305 Balance c/d 3,305
3,305 3,305
Balance b/d 3,305

80

4.0 CONCLUSION

The double entry system signifies a way of recording all accounting transactions twice in the books of account. The double entry principle states that for every debit entry, there must be a corresponding credit entry, and for every credit entry, there must be a corresponding debit entry. The double entry system is completed within an account in the ledger. The ledger contains various accounts which are part of the double entry. Each account in the ledger is divided into two parts namely debit side and credit side. The debit side is always on the left while the credit side is on the right.

SELF ASSESSMENT EXERCISE

1. You are to prepare a two column cash book and ledgers from the information given below for Uche Ventures for the month of January 2016.

N
Jan.1. Bank balance 23,500
1. Cash balance 500
2. Cash sales 3,000
4. Cheque from A. Bunmi 2,500
5. Rent paid by cash 1,000
8. Paid cash to bank 1,200
18. Cash sales paid directly to bank 4,000
28. Paid P. Peters by cheque 5,500
30. Withdrawn cash from bank 22,200
30. Paid wages in cash 5,720

2. You are to prepare the sales journal and respective ledgers from the following credit sales of Investment International for February 2015.

18. 7 packets of roofing sheet to Peter at N31,000 per packet and 3 dozens

of roofing nail at N220 per dozen.

24. 5 tons of Iron rods to Akanro Foundries for N178,940

28. 1½ dozens of roofing nail to Emmanuel at N240 a dozen.

5.0 SUMMARY

This unit explains the concept of double entry system, defines a ledger and discussed different classifications of ledger as personal ledger, impersonal ledger, sales ledger, purchases ledger, private ledger, real ledger and general or nominal ledger. Preparation of personal account, impersonal account, nominal account and real account in compliance with double entry principle were also considered

6.0 TUTOR-MARKED ASSIGNMENT

Question 1: Explain the following and give two examples for each of them.

i. Nominal accounts

ii. Real accounts

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iii. Personal accounts

Question 2: Write short notes on the following.

i. Personal ledger

ii. Sales ledger

iii. Purchases ledger

iv. Private ledger

v. Real ledger

vi. Nominal ledger

Question 3: Happy Life Ventures commenced business on 1st January 1992 as a general merchant with cash of N10,000. The following transactions took place in the first month of operation:

4/1/92 Purchased goods for sale and paid cash N2,500

10/1/92 Paid advertisement in cash N250

15/1/92 Sold part of the goods on credit to B. Jinadufor N1,800

18/1/92 Purchased goods on credit from E. KolawoleBusariN1,200

22/1/92 Sold goods for cash N2,200

25/1/92 Received from JinaduN1,200 being part settlement of his purchases.

26/1/92 Sold goods for cash N800

28/1/92 Paid rent of shop in cash N250

29/1/92 Paid transport and travelling cost of N200 in cash

30/1/92 Sold goods for cash N1,000

You are required to open the ledger accounts including cash book, sales journal and purchases day book to record the above transactions.

7.0 REFERENCES/FURTHER READINGS

Accounting Technicians Scheme West Africa (2009).Basic Accounting Processes and System Part 1, Study Pack ABINA Publishers

Garbutt, D. (1984), Carter’s Advanced Accounts “7th Edition”. London: Pitman Publishing Limited

Igben, R. O. (2014), Financial Accounting Made Simple. Lagos: ROI Publishers Oluyombo, Onafowokan (2016) Financial Accounting With Ease (3rd Edition). Magboro:
Kings & Queen Associates

Soyode, A. (1980), Financial Accounting: Principles and Practice. Uk: Graham Burn.

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UNIT 13: TRIAL BALANCE

CONTENTS

1.0 Introduction

2.0 Objectives

3.0 Main Content

3.1 Trial Balance

3.2 Benefits of Trial Balance

3.3 Preparation of Trial Balance

4.0 Conclusion

5.0 Summary

6.0 Tutor-Marked Assignment

7.0 References/Further Readings

1.0 INTRODUCTION

The accounting process and procedures for the preparation of financial statement starts from the source documents from where the subsidiary books of accounts such as cash book, sales journal and petty cash book are prepared. The next process after the subsidiary books is the preparation of ledger to fulfil the double entry principle. The next stage towards the preparation of financial statement is the trial balance which is the focus of this unit.

2.0 OBJECTIVES

At the end of this unit, you should be able to:

i. Define and explain trial balance

ii. Prepare trail balance from the subsidiary books of account.

iii. Understand the benefits of trial balance

iv. Discuss key facts about trial balance

3.0 MAIN CONTENT

3.1 TRIAL BALANCE

When transactions take place, first they are recorded in the journal. Then each ledger account is balanced. After this, a list of these ledger balances is prepared to make sure that posting has been done correctly. This is called Trial Balance. Thus a trial balance is a list or statement of debit and credit balances extracted from all accounts in the ledger for testing the arithmetical accuracy. Trial balance is not an account, but it is prepared in a well-structured manner such that those accounts in the ledger with credit balances are recorded and totaled separately from those with debit balances at a particular period. The total of both debit and credit balances should be equal. If the debit and credit total is not equal, it means that an error has occurred.

The fact that the trial balance agreed does not mean that there is no error in the accounts.

Discussion on errors and how they are corrected are treated in unit 10.

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3.2 BENEFITS OF TRIAL BALANCE

The followings are some of the advantages of the trial balance.

i. It helps to check the arithmetical accuracy of the accounts in the ledger.

ii. It forms the basis for preparing the financial statements. i.e. statement of profit or

loss and other comprehensive income, statement of changes in equity and statement of financial position.

iii. To help in detecting certain errors.

iv. To serve as an aid to management in decision making.

3.3 PREPARATION OF TRIAL BALANCE

There are three methods of preparing the trial balance. They are:

i. Total Method

In this method, the debit and credit totals of each accounts are entered in the total balance of the debit and credit columns respectively. It is expected that both sides of the trial balance should be equal and if it is not, then there is the presence of certain errors.

ii. Balance Method

The assumption “if equals are subtracted from equals, the remainders are equal” is the foundation for this method. In preparing the trial balance, the balances extracted from the ledgers are used and not the totals. In general, the trial balance is prepared under this method.

iii. Total and Balance Method

This is the combination of the first two methods discussed. The trial balance is prepared by taking the totals and balance from each ledger account.

3.3.1 Key points about trial balance

i. The trial balance is not an account, because it has no debit or credit sides which are found in an account.

ii. Trial balance is not part of the double entry system.

iii. Trial balance is not prepared directly from books of original entries.

iv. The trial balance is a summary of all the accounts in the ledgers.

v. There is no opening or closing balances in the trial balance like balance carry down or balance brought down that is common in an account.

vi. Double entry principle is not followed directly when preparing the trial balance.

Example 1:Mr. Moses Goodluck commenced business with N250,000 cash on June 1, 2015 and presented the following for the month.

N
June 2. Paid rent 20,000
June 6. Purchases 85,000
June 12. Sales 217,500
June 16. Paid wages 4,220
June 18. New motor vehicle 220,000
84

June 24. Sales 412,345
June 26. Purchases 108,000
June 30. Electricity bill 3,305

All the above transactions are by cash. Prepare the cash book, transfer to the ledgers and extract a trial balance for the month.

SUGGESTED SOLUTION TO EXAMPLE 1
Mr. Moses Goodluck
Cash Book
Dr. For the month of June 2015 Cr.
Date Particulars Folio Amount Date Particulars Folio Amount
June 1 Capital 250,000 June 2 Rent 20,000
June 12 Sales 217,500 June 6 Purchases 85,000
June 24 Sales 412,345 June 16 Wages 4,220
June 18 Motor vehicle 220,000
June 26 Purchases 108,000
June 30 Electricity bill 3,305
Balance c/d 439,320

879,845 879,845
Balance b/d 439,320

Ledgers
Dr Capital account Cr
Date Particulars Folio Amount Date Particulars Folio Amount
Balance c/d 250,000 June 2 Cash 250,000
250,000 250,000
Balance b/d 250,000

Dr Sales account Cr
Date Particulars Folio Amount Date Particulars Folio Amount
June 12 Cash 217,500
Balance c/d 629,845 June 24 Cash 412,345
629,845 629,845
Balance b/d 629,845

Dr Rent account Cr
Date Particulars Folio Amount Date Particulars Folio Amount
June 2 Cash 20,000 Balance c/d 20,000
20,000 20,000
Balance b/d 20,000
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Dr Purchases account Cr
Date Particulars Folio Amount Date Particulars Folio Amount
June 6 Cash 85,000
June 26 Cash 108,000 Balance c/d 193,000
193,000 193,000
Balance b/d 193,000

Dr Wages account Cr
Date Particulars Folio Amount Date Particulars Folio Amount
June 16 Cash 4,220 Balance c/d 4,220
4,220 4,220
Balance b/d 4,220

Dr Motor vehicle account Cr
Date Particulars Folio Amount Date Particulars Folio Amount
June 18 Cash 220,000 Balance c/d 220,000
220,000 220,000
Balance b/d 220,000

Dr Electricity account Cr
Date Particulars Folio Amount Date Particulars Folio Amount
June 30 Cash 3,305 Balance c/d 3,305
3,305 3,305
Balance b/d 3,305

Trial Balance

The trial balance is prepared by transferring the balance on each account as it appears on the account to debit or credit column of the trial balance. Debit balance in the account will be in the debit column of the trial balance while the credit balance in the account will be in the credit column of the trial balance. The closing balance from the cash book is also included in the trial balance.

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Mr. Moses Goodluck
Trial Balance
. For the month of June 2015
Debit Credit
NN Capital 250,000

Sales 629,845
Rent 20,000
Purchases 193,000
Wages 4,220
Motor vehicle 220,000
Electricity 3,305
Cash 439,320 _______
879,845879,845

Example 2: Prepare the necessary accounts for the month of August, 2014 for Better Change Limited from the following information and extract a trial balance.

Aug. 1. Started business with cash of N200,000

Aug. 3. Bought goods on credit from D. King N54,000; Mr.KamaraN87,000 and R. A. AkintoyeN25,000

Aug. 4. Paid rent by cash N 12,000
Aug. 6. Sold goods on credit to Flamingo N 43,000; Bose N 62,000 and Tony
N 170,000
Aug. 10. Flamingo paid by cheque N 42,000
Aug. 12. Tony paid cash of N 166,500
Aug. 21. Sold goods on credit to Bose N 60,200
Aug. 24. Bought goods by cash N 18,715
Aug. 26. Cash sales N 46,148
Aug. 28. Bought goods on credit from Mr.Kamaraworth N 28,950
Aug. 30. Paid salary by cheque N 7,250
Aug. 31. Withdrew cash of N 5,000 for personal use
Aug. 31 Withdrew N 30,000 from bank for office use.
Aug. 31. Paid Mr.Kamara N 82,750 by cash

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SUGGESTED SOLUTION TO EXAMPLE 2
Better Change Limited
Two Column Cash Book
Dr For the month of August 2014 Cr

Date Particulars Folio Cash Bank Date Particulars Folio Cash Bank
1 Capital 200,000 4 Rent 12,000
10 Flamingo 42,000 24 Purchases 18,715
12 Tony 166,500 30 Salaries 7,250
26 Sales 46,148 31 Drawings 5,000
31 Bank C 30,000 31 Cash C 30,000
31 Mr.Kamara 82,750
31 Balance c/d324,1834,750
442,648 42,000 442,648 42,000
Balance b/d 324,183 4,750
Purchases Day Book

Date Particulars Amount
Aug. 3 D. King 54,000
Aug. 3 Mr.Kamara 87,000
Aug. 3 R. A. Akintoye 25,000
Aug. 28 Mr.Kamara 28,950
Total 194,950
Sales Journal
Date Particulars Amount
Aug. 6 Flamingo 43,000
Aug. 6 Bose 62,000
Aug. 6 Tony 170,000
Aug. 21 Bose 60,200
Total 335,200
The ledgers
Capital Account
Bal c/d 200,000 Cash 200,000
200,000 200,000
Bal b/d 200,000

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Flamingo Account
Sales 43,000 Bank 42,000
Bal. c/d 1,000
43,000 43,000
Bal. b/d 1,000
Tony Account
Sales 170,000 Cash 166,500
Bal. c/d 3,500
170,000 170,000
Bal. b/d 3,500
Sales Account
Cash 46,148
Bal c/d 381,348 Credit 335,200
381,348 381,348
Bal b/d 381,348
Bose Account

Sales 62,000
Sales 60,200 Bal c/d 122,200

122,200 122,200
Bal b/d 122,200

Rent Account
Cash 12,000 Bal c/d 12,000
12,000 12,000
Bal b/d 12,000

Purchases Account
Cash 18,715
Credit 194,950 Bal c/d 213,665
213,665 213,665
Bal b/d 213,665
Salaries Account
Bank 7,250 Bal c/d 7,250
7,250 7,250
Bal b/d 7,250
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Drawings Account
Cash 5,000 Bal c/d 5,000
5,000 5,000
Bal b/d 5,000
Mr.Kamara Account

Bank 82,750 Purchases 87,000
Bal c/d 33,200 Purchases 28,950
115,950 115,950
Bal b/d 33,200
D. King Account
Bal c/d 54,000 Purchases 54,000
54,000 54,000
Bal b/d 54,000

R. A. Akintoye Account
Bal c/d 25,000 Purchases 25,000
25,000 25,000
Bal b/d 25,000

Note: No account is opened for the movement of funds between office and bank on August 31, 2014 because it is a ‘contra entry’. The double entry is already completed in the cash book as a result of the debit and credit postings.

Better Change Limited

Trial Balance
Debit Credit
Cash in hand 324,183
Cash at bank 4,750
Capital 200,000
Flamingo 1,000
Tony 3,500
Sales 381,348
Bose 122,200
Rent 12,000
Purchases 213,665
Salaries 7,250
Drawings 5,000
Mr.Kamara 33,200
D. king 54,000
R. A. Akintoye 25,000
693,548693,548
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Example 3: Dominion Ventures commenced business on 01/01/2005 with cash of
N 100,000. The transactions below took place in January 2005.
N
4/1/05 Goods purchased in cash 25,000
10/1/05 Advertisement by cash 2,500
15/1/05 Credit sales to B. Jinadu 18,000
18/1/05 Bought goods from E. Kolawole 12,000
22/1/05 Cash sales 22,000
25/1/05 Cash form B. Jinadu 12,000
26/1/05 Sales by cash 8,000
28/1/05 Paid rent in cash 2,500
29/1/05 Transport expenses paid in cash 2,000
30/1/05 Cash sales 10,000

You are required to prepare the necessary accounts and extract a trial balance as at January 31, 2005.

SUGGESTED SOLUTION TO EXAMPLE 3
Dominion Ventures
Cash Book
Dr For the month of January 2005 Cr

Date Particulars Folio Cash Date Particulars Folio Cash
1/1/05 Capital 100,000 4/1/05 Purchases 25,000
22/1/05 Sales 22,000 10/1/05 Advertisement 2,500
25/1/05 B. Jinadu 12,000 28/1/05 Rent 2,500
26/1/05 Sales 8,000 29/1/05 Transport 2,000
30/1/05 Sales 10,000 31/1/05 Balance c/d 120,000

152,000 152,000
1/2/05 Balance b/d 120,000

Sales Day Book
Date Particulars Amount
15/1/05 B. Jinadu 18,000

Purchases Journal
Date Particulars Amount
18/1/05 E. Kolawole 12,000

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Ledgers

Capital Account
Cash 100,000

Sales Account
22/1/05 Cash 22,000
26/1/05 Cash 8,000
30/1/05 Cash 10,000
Balance c/d 58,000 31/1/05 Credit 18,000
58,000 58,000
Balance b/d 58,000
B. Jinadu Account
Sales 18,000 Cash 12,000
Balance c/d 6,000
18,000 18,000
Balance b/d 6,000
Purchases Account
4/1/05 Cash 25,000
31/1/05 Credit 12,000 Balance c/d 37,000
37,000 37,000
Balance b/d 37,000

E. Kolawole Account
Purchases 12,000

Advertisement Account
Cash 2,500

Rent Account
Cash 2,500

Transport Account
Cash 2,000

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Dominion Ventures
Trial Balance
Debit Credit
Cash balance 120,000
Capital 100,000
Sales 58,000
B. Jinadu 6,000
Purchases 37,000
E. Kolawole 12,000
Advertisement 2,500
Rent 2,500
Transport 2,000_______
170,000 170,000
4.0 CONCLUSION

The trial balance provides the basis towards the preparation of the financial statement because the trail balance is the list of all balances extracted from all the accounts in the ledgers. The trail balance provides the summary of all the accounting transactions for a given period showing the closing balances or figures derived from the accounts. In all, trail balance helps to check the arithmetical accuracy of the accounts in the ledger.

SELF ASSESSMENT EXERCISE
1. What is a trial balance?

2. To what extent is the trial balance important to you?

3. K. Mete started his business as soft drink retailer on 1st October, 2014 At that date he possessed a motor van valued at N32,200 and cash N55,000. He owned N10,000 to his brother, J. Jos for money lent. Mete’s transactions during October were as follows.

Oct 2: Purchased on credit 250 crates of assorted soft drinks from Lagos Limited a distributor at N126 per crate.

2: Paid transportation and handling charges at N1,076.

4: Sold on credit to N. Namman 100 crates at N150 per crate.

6: Sold for cash 40 crates at N146 per crate

8: Paid Sundry expenses, N2,713

11: Purchased on credit from M. Jibo 4 tyres at N2,500 each

13. Paid the account of Lagos Limited.

14. N. Namman paid his account

18. Paid salaries and wages N2,993

20: Purchased on credit from Lagos Limited 10 crates at N140 per crate.

24: Sold on credit to Staff Club, 40 crates at N175 per crate.

Required: Open the ledger account post the above transactions. Balance the ledger and extract a trial balance as at 31st October, 2014.

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5.0 SUMMARY

This unit is used to defined and explained trial balance, explained how to prepare trail balance from the subsidiary books of account, itemise the benefits of trial balance and also discussed the key facts about trial balance.

6.0 TUTOR-MARKED ASSIGNMENT

Question 1: Bunmi Favour sells frozen foods and dairy products in large quantities to retailers. His sales for the first week of January 2016 are as follows.

January 1. 4 cartons of cray fish at N1,250 a carton to Joshua.

7 cartons of shrimps to Gbemi at N4,100 per carton.

2 cartons of cray fish at N1,245 each to Gbemi and he received 10% trade discount

January 2 . Ajayi bought 15 crates of white egg at N880 per crate and 3 ½ packets of prawns at N7,200 a packet. A discount of 5% was given to him

January 3 6 cartons of cray fish was sold to Debo for N7,440. He also bought 2 packets of prawns at N7,225 per packet and 5 cartons of shrimps at N4,150 a carton. Being an old customer, Bunmi Favour gave him 15% discount and this encourage him to buy a carton of white egg for N880, but this do not qualify for discount.

January 5. Folake bought a carton each of cray fish, prawn, white egg and shrimps at same price with Joshua, Ajayi, Debo and Gbemi respectively. Being a woman with the ability to negotiate, she received 10% trade discount.

Prepare the sales day book, the ledger and the trial balance for Bunmi Favour.

Question 2: What are thedifferences between the trial balance and a ledger?

7.0 REFERENCES/FURTHER READINGS

Accounting Technicians Scheme West Africa (2009).Basic Accounting Processes and System Part 1, Study Pack ABINA Publishers

Garbutt, D. (1984), Carter’s Advanced Accounts “7th Edition”. London: Pitman Publishing Limited

Igben, R. O. (2014), Financial Accounting Made Simple. Lagos: ROI Publishers Oluyombo, Onafowokan (2016) Financial Accounting With Ease (3rd Edition). Magboro:
Kings & Queen Associates

Soyode, A. (1980), Financial Accounting: Principles and Practice. Uk: Graham Burn.

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UNIT 14: TYPES AND CORRECTION OF ERRORS

CONTENTS

1.0 Introduction

2.0 Objectives

3.0 Main Content

3.1 Error in Accounting

3.2 Causes of Errors

3.3 Types of Errors Not Affecting the Trial Balance

3.4 Suspense Account

4.0 Conclusion

5.0 Summary

6.0 Tutor-Marked Assignment

7.0 References/Further Readings

1.0 INTRODUCTION

The preparations of books of accounts are done by people even when computer is used. As a result of imperfection on the part of human beings, mistakes are likely to occur when accounting records are prepared. There is the need to know different types of mistakes or errors that can occur while preparing accounts and how such errors should be treated or corrected in the books of accounts. This is our focus in this unit.

2.0 OBJECTIVES

At the end of this unit, you should be able to:

i. Explain error in accounting

ii. Discuss causes of errors

iii. Understand and prepare suspense account

iv. Know and explain types of errors not affecting the trial balance

3.0 MAIN CONTENT

3.1 ERROR IN ACCOUNTING

Error is an accounting terminology used to signify mistakes made while recording and/or posting financial transactions. Errors are genuine mistakes that are not deliberate or pre-planned, but which occur in the course of recording financial transactions. Errors in accounting are classified into two. Those that affect the agreement of trial balance and those that do not affect the agreement of trial balance.

Error is not the same as fraud. Fraud is a deliberate effort and/or attempt to change and/or modify financial information and/or records for someone personal gains to the detriment of others.

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3.2 CAUSES OF ERRORS

Errors can occur as a result of:

i. Not following the double entry principle.

ii. Carelessness of the book keeper or accounting personnel.

iii. Over sight: a complete omission of one or more accounting entry(ies).

iv. Under casting of entries in an account.

v. Over casting of entries in an account.

vi. Wrong posting: where debit entry is posted as credit in the ledger.

vii. Technical fault in accounting software: this relate to organisation where the accounting system is computerized.

3.3 TYPES OF ERRORS NOT AFFECTING THE TRIAL BALANCE

There are different types of errors that its occurrence would not affect the agreement of trial balance total. The most common of these errors are,

i. Errors of original entry

ii. Errors of omission.

iii. Compensating errors.

iv. Errors of principle

v. Errors of commission

3.3.1 Errors of Original Entry

Errors of original entry occurs in a situation where the initial figure or amount used in posting a financial transaction from the subsidiary books is incorrect and the double entry is completed using the incorrect amount. For example, where sales invoice total of N55,000 is mistakenly calculated to be N45,000. The same N45,000 will credited to sales account and N45,000 debited to the customer’s account.

3.3.2 Errors of Omission

Errors of omission take place when a transaction is completely omitted from the books of accounts. An example is a payment of N1,250 cash for newspaper, but this is not posted to either the cash book nor newspapers account in the ledger. The transaction is therefore omitted from the accounting records.

3.3.3 Compensating Errors

Compensating errors explain situations where the occurrence of one error cancel out another error that has occurred either in the same account or different accounts. E.g. where sales account was added up in excess by N2,000 and the purchases account also added up by N2,000.

3.3.4 Errors of Principle

This is where an account of capital expenditure is treated as revenue expenditure item or an item of revenue expenditure is treated as capital expenditure in the account. It means that an item is entered in the wrong class of account. For example, N5,000 cash paid for repairs of motor vehicle (which is a revenue expenditure) debited to motor vehicle asset account (a

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capital expenditure) instead of motor vehicle expense account. Such an error will not affect the agreement of the trial balance total because both are debit entries in the ledger.

3.3.5 Errors of Commission

Errors of commission occur as a result of posting the correct amount or figure to the wrong account, without deviating from double entry principle. E.g. A sale on credit of N45,300 to a customer Mr. Y. Adeyemi posted to the account of Mr. X. Adeyeni.

3.4 SUSPENSE ACCOUNT

We have examined those errors that do not affect the agreement in trial balance total in section 3.3 above. However, the occurrence of some errors (excluding those discussed above) can cause disagreement in the trial balance total.

There are reasons why trial balance totals may not agree. These include:

i. Omission of a ledger account balance from the trial balance.

ii. Overcast: where one side of ledger account was added up by amount higher than actual.

iii. Entry of an amount in the same side of the ledger i.e. a debit entry posted as credit or a credit entry posted as debit.

iv. Undercast: where one side of a ledger account was added up by an amount lower than actual.

The correction of the above errors will necessitate the use of a suspense account.

Where the trial balance total do not agree and to avoid any delay in the preparation of final accounts, a suspense account would be opened to record the difference in the trial balance total pending the time the errors are located and corrected. Suspense account therefore is a temporary account opened to record errors that cause the trial balance total not to agree pending the time the errors are corrected.

Any error that does not affect the agreement of the trial balance total will not come to suspense account.

Example 1: Cash of N10,000 received from a debtor was recorded in the cash book only.

You are to correct the error.

SUGGESTED SOLUTION TO EXAMPLE 1

To correct the above error in example 1, it should be noted that the correct posting if an error does not occur is to debit cash account with N10,000 and credit debtors account with N10,000.

However, what was done from the question is that only the cash account was debited with N10,000. It means that the debtors account was not credited, which suggest that the

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difference in the trial balance total of N10,000 would have been posted to the suspense account for the trial balance total to agree. The N10,000 will be in the credit side of the suspense account to compensate for the debtors account that was not credited.

The fact that debtors account was not credited means that suspense account must have been credited because the error will affect the trial balance total. In order to correct the error,

Debit - Suspense Account N 10,000
Credit - Debtors Account N 10,000

Suspense account is debited because it was earlier credited for the trial balance total to agree as explained above.

Example 2: You are to correct the error below.

A debtor paid N5,500 cash but his account was credited with N5,000 while the cash book was debited with N5,500.

SUGGESTED SOLUTION TO EXAMPLE 2

The first thing to be noted in example 2 is that the cash book posting was correct while the posting to the customer i.e. the debtor has a short fall of N500. The error in the question requires the correction of the N500 which should be credited to the debtor’s account. When this is done, the credit entries in the debtor’s account will increase to N5,500 i.e. the initial N5,000 that was correctly credited instead of N5,500, and the N500 being credited on correction of the error.

Since the error is a shortfall of N500 on the credit side, it means that the difference of N500 is already posted to suspense account. The posting for correcting the error is stated below.

Debit - Suspense Account N500

Credit - Debtors Account N500

Example 3: A Payment of N18,000 to a creditor was omitted from the cash book but recorded in the creditors account in the ledger.

SUGGESTED SOLUTION TO EXAMPLE 3

If you follow the explanations given in the solutions to example1 and 2 above, the solution to example 3 is as stated below.

Debit - Suspense Account N 18,000
Credit - Cash Account N 18,000

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Example 4: The accounting records of Able People Ventures show that motor vehicle expenses of N12,220 paid for by cash was posted to motor vehicle assets account and cash book. You are to identify the error in the posting (if any), and to correct the error so identified.

SUGGESTED SOLUTION TO EXAMPLE 4

The error in the posting is that motor vehicle assets account (capital expenditure) was debited instead of motor vehicle expenses account (revenue expenditure).

This error does not affect the trial balance total, however the correction is stated below.

Debit - Motor vehicle expense account N 12,220
Credit - Motor vehicle assets account N 12,220

3.5 CORRECTION OF ERRORS

We have examined above errors that affect the trial balance total which lead to the creation of suspense account. In a business organisation, the numbers of errors that occur within a particular accounting period will be of different types and nature. Errors should not be corrected by overwriting but by making fresh entry. These errors could affect one account called one sided errors or both accounts known as two sided errors

One sided errors: This error does not require any journal entry for rectification, but a physical correction of wrong figures or an opposite entry in the same account.

Two sided errors: Examples of such errors include: complete omission, error of principle, wrong account posting etc.

Detailed questions are examined below for errors that affect the trial balance total and those that do not affect the trail balance total.

Example 5: You are required to show the journal entries to correct the following errors found in the book of Good Business Investments.

i. Motor vehicle purchases N720,000 entered in purchases account.

ii. Sales account is overcast by N440,000, so also is wages account.

iii. Goods purchased from Kunle& Sons N750,000 was entered in kumi Enterprises account.

iv. Commission received N70,000 was entered in sales account.

v. Sales to Abudu of N100,000 was completely omitted from the books.

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SUGGESTED SOLUTION TO EXAMPLE 5
Good Business Investments
Journal
Dr Cr
i. Motor vehicle account 720,000
Purchases account 720,000
Being correction of motor vehicle
purchased debited to purchases account
ii. Sales account 440,000
Wages account 440,000
Being correction of overcast of sales and
wages.
iii. Kumi Enterprises account 750,000
kunlei& Sons account 750,000
Being correction of goods purchased
wrongly debited
iv. Sales account 70,000
Commission received account 70,000
Being reversal of commission received
wrongly credited to sales account.
v. Abudu account 100,000
Sales account 100,000
Being correction of omitted sales

Example 6: When the trial balance of Pleasure Recovery Enterprises was drawn for the year ended 31st December 2013, the trial balance had a difference of N25,000 and it was credited to the suspense account. An independent consultant who reviews the firm records discovered the following.

i. Cash of N20,000 received from a debtor was recorded in cash book only.

ii. Payment of N4,000 by cheque to a creditor was not reflected in the bank account but recorded in other ledger.

iii. A debtor paid N11,000 cash, but her account shows N10,000, while the other account had no mistake.

iv. Motor vehicle expenses of N20,000 in cash was posted to motor vehicle assets account.

You are required to:

(a) Prepare the journal entries to correct these errors and

(b) Suspense account.

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SUGGESTED SOLUTION TO EXAMPLE 6
Pleasure Recovery Enterprises
(a) Journal Entries
Dr. Cr.
i. Suspense Account 20,000
Debtors Account 20,000
Being amount received from debtors
not credited now corrected.
ii. Suspense Account 4,000
Bank Account 4,000
Being payment earlier on omitted
from bank account
iii. Suspense Account 1,000
Debtors Account 1,000
Being correction of an undercast
in the debtors account
iv. Motor vehicle expenses Account 20,000
Motor vehicle assets Account 20,000
Being correction of an error of principle

(b) Suspense Account
Debtors 20,000 Bal b/d 25,000
Bank 4,000
Debtors 1,000 ______
25,000 25,000

Example 7: In order to meet the deadline of the forth-coming Annual General Meeting, the Managing Director of Jade and Jola Ltd. requested the Book Keeper to prepare the final accounts of the company. The Managing Director was worried about the figures shown in the accounts prepared by the Book-Keeper and has consulted you to review them. After a thorough investigation, you discovered the following mistakes in the accounts:

(a) No adjustment entry was passed for an amount of N3,200 relating to outstanding rent for the Managing Director’s accommodation;

(b) Plant depreciation of N2,500 was completely omitted;

(c) The purchases account included the sum of N960 paid for stationery items for office use;

(d) Purchases day book was over cast by N2,400

(e) Bad debt recovered amounting to N1,000 was credited to sales account;

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(f) Sales account was shown as N12,400 instead of N10,000;

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(g) N500 for publicity expenses was recorded as postage expenses.

You are required to prepare the relevant journal entries to rectify the above errors.

SUGGESTED SOLUTION TO EXAMPLE 1

Treasure Gold Ventures

Statement of Profit or Loss

For the year ended December 31, 2015

N N N
Sales 64,000
Less returns inwards 1,700
62,300
Opening stock 12,480
Add purchases 37,600
Add carriage inwards 1,500
39,100
Less returns outwards 4,600 34,500
46,980
Less closing stock 7,400
Cost of goods sold 39,580
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Gross profit 22,720
Add discount received 300
23,020
Transport 4,500
Traveling 2,000
Carriage outwards 2,500
Salaries 3,200
Discount allowed 280
12,480
Net profit for the year 10,540

Note carefully the treatment of closing stock which is normally written outside of the trial balance. Closing stock is deducted from the addition of opening stock and purchases in the statement of profit or loss.

Example 2: The trial balance below is drawn from the books of Greater Grace Concepts for the year ended 30th June 2016.

DR. CR.
N N
Capital account 17,000
Drawing account 8,400
Purchases 38,000
Sales 60,000
Discounts 2,400 1,900
Office rent 1,080
Travelling expenses 960
Warehouse rent 1,320
Fire insurance 180
Insurance on purchases 240
Office salaries 5,520
Carriage inwards 160
Carriage outwards 140
Furniture &fittings 3,600
Opening stock 4,000
Trade debtors 17,400
Sundry creditors 15,020
Cash at bank 10,224
Cash in hand 110
Bank charges 36
General expenses 150 ______
93,920 93,920
Note the following:

i. Closing stock was N4,800

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ii. You are to prepare statement of profit or loss for the year.

SUGGESTED SOLUTION TO EXAMPLE 2

Greater Grace Concepts

Statement of Profit or Loss

For the year ended 30th June 2016

N N
Sales 60,000
Opening stock 4,000
Purchases 38,000
Carriage inwards 160
42,160
Less closing stock 4,800
Goods available for sale 37,360
Purchases insurance 240
Warehouse rent 1,320
Cost of gods sold 38,920
Gross profit 21,080
Other income
Discount received 1,900
22,980
Discount allowed 2,400
Office rent 1,080
Travelling expenses 960
Fire insurance 180
Office salaries 5,520
Carriage outwards 140
Bank charges 36
General expenses 150 10,466
Net profit 12,514
4.0 CONCLUSION

The final accounts represent the presentation of financial information for a particular period or year to the users of financial report. The final accounts of a sole trader consist of statement of profit or loss and statement of financial position. The preparation of statement of profit or loss for sole traders enables the business owner to ascertain the profit or loss from the business for a particular period, month or year. Statement of profit or loss is technically divided into two sections to show the gross profit or loss and the net profit or loss for a particular period.

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SELF ASSESSMENT EXERCISE

1. Differentiate between a statement of profit or loss and a trial balance.

2. The following Trial Balance was extracted from the books of Promise Global Investments on 31st December, 2013

N N
Premises 150,000
Motor Vans 27,810
Capital 1st January, 2013 483,720
Advertising 3,810
Postage 4,140
Purchases 2,054,550
Electricity 2,730
Salaries 85,110
Tenement Rate 3,030
Telephone 1,020
Furniture 33,120
Sales 2,204,940
Returns 1,680 11,760
Bad Debts 780
Insurance 5,760
Commission received 52,500
Debtors 146,460
Creditors 252,150
Cash in hand 10,560
Bank 113,760
Stock 1st Jan. 2013 360,750 ____
3,005,070 3,005,070

Additional information is as follows:

i. The stock at 31st December 2013 was N323,610

ii. Prepare the statement of profit or loss for the year.

5.0 SUMMARY

This study unit was used to define final accounts, explain the components of final accounts, define technical terms relating to statement of profit or loss such as opening stocks, purchases, carriage inward, returns outwards, closing stocks, cost of goods sold, gross profit, other income, expenses, carriage outwards and net profit. Statement of profit or loss for sole trader was also prepared in this unit.

6.0 TUTOR-MARKED ASSIGNMENT

Question 1: The trial balance of Adekanmbi, a sole proprietor for the year ended 31/12/2015 was as follows:

DR CR

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N N
Stock 1/1/2015 7,500
Cash 10,200
Capital 1/1/2015 199,750
Drawings 1,300
Bank 85,000
Land and Building 90,000
Furniture 1,500
Rent 500
Rates 350
Debtors/Creditors 5,600 15,000
Electricity 300
Cleaning 50
Carriage on purchases 150
Carriage on sales 210
Motor Vehicles 45,000
Purchases 40,500
Returns Outwards 1,200
Returns Inwards 400
Sales 85,000
Interest received 970
Stationery 1,000
Salaries 12,000
Insurance 360
301,920 301,920

Closing stock, 31/12/2015 N5,300. Prepare for Adekanmbi, statement of profit or loss for the year ended 31/12/2015.

Question 2: T. Addo’s business affairs on 1st December 2015 stood as follows:

N

Cash in Hand 440
Cash at Bank 2,440
Stock 3,500
Furniture and Fittings 1,200

You are required to:

(a) Enter the above, by means of the journal, into his ledgers, and post thereto the following transactions which took place during the month of December 2015. (Use a two column cash book for cash transactions)

N
Dec. 2 Bought goods from V. Bojon& Sons on credit 1,200
Dec. 3 Paid insurance premium in cash 150
Dec. 5 Paid V. Bojon by cheque the amount due
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Dec. 8 Bought goods – gave a cheque for 840
Dec. 12 Sold goods to Badu &Co. on credit 1,560
Dec. 17 Sold goods to L. Aliyi on credit 2,000
Dec. 22 Sold goods to Badu &Co. on credit 730
Dec. 27 Received a cheque from Badu & Co. 1,290
Dec. 28 Paid salaries by cheque 450
Dec. 31 Drew cheque for personal use 500

(b) Extract a Trial Balance

(c) Prepare a statement of profit or loss for the month ended 31st December 2015, Stock on hand was valued at N3,200

7.0 REFERENCES/FURTHER READINGS

Accounting Technicians Scheme West Africa (2009).Basic Accounting Processes and System Part 1, Study Pack. Lagos: Abina Publishers

Garbutt, D. (1984), Carter’s Advanced Accounts “7th Edition”. London: Pitman Publishing Limited

Igben, R. O. (2014), Financial Accounting Made Simple. Lagos: ROI Publishers

Jat, R.B. and Jugu, G.Y. (2008).Modern Financial Accounting: Theory and Practice. Jos:

Ehindero (Nig.) Limited

Olanrewaju, Oluseyi (2012) IFRS PAL – Handy Approach. Lagos: Dimkem Publications Limited.

Oluyombo, Onafowokan (2016) Financial Accounting With Ease (3rd Edition). Magboro:

Kings & Queen Associates

Soyode, A. (1980), Financial Accounting: Principles and Practice. Uk: Graham Burn. The Institute of Chartered Accountants of Nigeria, (2006).Fundamentals of Financial Accounting.Foundation Study Pack. Lagos: Vikas Publishing Limited

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UNIT 18: FINAL ACCOUNTS OF A SOLE TRADER 2: STATEMENT OF FINANCIAL POSITION

CONTENTS

1.0 Introduction

2.0 Objectives

3.0 Main Content

3.1 Statement of Financial Position

3.2 Components of Statement of Financial Position

3.3 Preparation of Statement of Financial Position

4.0 Conclusion

5.0 Summary

6.0 Tutor-Marked Assignment

7.0 References/Further Readings

1.0 INTRODUCTION

The statement of financial position is part of the final accounts which are prepared from the subsidiary books of accounts, to the ledger and the extraction of trial balance to the statement of profit or loss. The final accounts are the end points of books of accounts which are used to determine the income, profit, loss, assets and liabilities of a business concern. The statement of financial position for sole traders who deal in the buying and selling of goods are discussed in this unit.

2.0 OBJECTIVES

At the end of this unit, you should be able to:

i Define statement of financial position

ii. Explain the components of statement of financial position

iii. Understand the technical terms in statement of financial position

iv. Prepare statement of financial position for a sole trader

iv. Know the difference between statement of profit or loss and statement of financial position.

3.0 MAIN CONTENT

3.1 STATEMENT OF FINANCIAL POSITION

Statement of financial position is a statement (not an account) that contains the list of assets and liabilities with owner’s capital at the end of a particular period, month or year, and arranged in an orderly manner. Like the trial balance, it is expected that both assets and liabilities figure in a statement of financial position should be equal in total.

3.2 COMPONENTS OF FINANCIAL POSITION

Let us look at the components of financial position which are terms that are unique in accounting.

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3.2.1 Assets

These are valuables, claims, possessions and properties belonging to the business. Assets are normally arranged in order of liquidity in the statement of financial position. There are different types of assets, namely:

3.2.1.1 Non-current assets

These are company’s tangible assets that are expected to be used in, and for the organisation for many years e.g. furniture, fittings, land, building, equipment, motor vehicle, etc.

3.2.1.2 Current assets

This class of assets are those whose value fluctuate during the year depending on the level of business activities e.g. debtors, stock, bank balance, cash in hand, prepayments etc.

3.2.1.3 Intangible assets

These are assets that add value to the organisation but they cannot be seen by their nature e.g.

goodwill, copyrights, patent rights, trade mark etc.

3.2.1.4 Fictitious assets

These are expenditure incurred to cover a long period of time as a result of which some portions are capitalised or deferred pending the time it is written off against the profit (in statement of profit or loss) for subsequent years e.g. preliminary expenses, research and development expenses, discount on shares etc.

3.2.1.5 Investments

These are ownership interests a company has in another organisation. It could be in shares or debentures. This investment may be quoted (marketable) or unquoted, and it can be of short term or long term in nature.

3.2.2 Liabilities

These are financial obligations the business has in favour of outsiders. They are amount owed to individuals and/or organisations. Liabilities can be grouped into:

3.2.2.1 Non-current liabilities

These are financial obligations against the company that are not due for repayment within one year e.g. bank loan, mortgage loan, deferred tax etc.

3.2.2.2 Current liabilities

They are debts that are due for payment within one year and do change regularly from one period to another within one accounting year e.g. creditors, accruals, bank overdraft etc.

3.2.3 Capital or owner’s equity

This is the initial investment of the business owner in the company. It represents the value of money, properties and other resources brought in by the owner to start the business and other additions after the commencement of the business.

127

As business progresses, profits not taken out of the business are added into capital while drawings reduce owner’s interest in the business. Usually, capital is equivalent to total assets minus total liabilities. CAPITAL = Total assets – Total liabilities.

3.3 PREPARATION OF STATEMENT OF FINANCIAL POSITION

3.3.1 Format of Statement of Financial Position

ABC Business Ventures
Statement of financial position
As at 31st December 2014
ASSETS N N

Non-current assets
Furniture XXXX
Less depreciation XX XXXX
Motor vehicle XXXX
Less depreciation XX XXXX
Plant and machinery XXXX
Less depreciation XX XXXX
Office equipment XXXX
Less depreciation XX XXXX
XXXX
Current assets
Debtors XXXX
Stock XXXX
Payment in advance XXXX
Cash at bank XXXX
Cash in hand XXXX XXXX
Total Assets XXXXX
EQUITY AND LIABILITIES
Equity
Capital XXXX
Add net profit XXXX
XXXX
Less drawings XXXX
Owner’s equity XXXX

128

Current liabilities
Creditors XXXX
Bank overdraft XXXX
Accrued expenses XXXX XXXX
Total equity and liabilities XXXXX

Example 1: From the balances below, prepare statement of financial position for ABC Business as at December 31, 2015.

N
Furniture 24,000
Stock at start 12,480
Capital 24,800
Debtors 12,260
Creditors 14,520
Cash in hand 1,200
Drawings 5,000
Closing stock 7,400
Net profit 10,540

SUGGESTED SOLUTION TO EXAMPLE 1
ABC Business
Statement of Financial Position
As at December 31, 2015
Non-current asset N N

Furniture 24,000
Current assets
Stock 7,400
Debtors 12,260
Cash 1,200 20,860
Total Assets 44,860
Equity and Liability
Equity
Capital 24,800
Add net profit 10,540
35,340
Less drawings 5,000
Owner’s equity 30,340
129

Current liability
Creditors 14,520
Total equity and liability 44,860

Example 2 The trial balance below is drawn from the books of Palace Ventures for the year ended 30th June 2016.

DR. CR.
N N
Capital account 17,000
Drawing account 8,400
Furniture & fittings 3,600
Trade debtors 18,000
Sundry creditors 15,020
Cash at bank 10,200
Cash in hand 110
Opening stock 4,412
Net profit ___ 12,702
44,722 44,722

Note the following as at June 30th.

i. Prepaid expenses N12

ii. Closing stock was N4,800

iii. Accrued expenses N400

iv. Depreciation on furniture is 10%

You are to prepare statement of financial position for the year.

SUGGESTED SOLUTION TO EXAMPLE 2

Palace Venture

Statement of Financial Position

As at 30th June 2016

Assets N N

Non-current asset
Furniture & fittings 3,600
Less depreciation 360
3,240
Current assets
Debtors 18,000
Stock 5,160
130

Prepaid expenses 12
Cash at bank 10,200
Cash in hand 110 33,482
Total Assets 36,722
Equity and Liabilities
Equity
Capital 17,000
Net profit 12,702
29,702
Less drawings 8,400
Owner’s equity 21,302
Current liabilities
Creditors 15,020
Accrued expenses 400 15,420
Total equity and liabilities 36,722

SELF ASSESSMENT EXERCISE

1. Differentiate between a statement of financial position and a statement of profit or loss.

2. The trial balance of Umaru Blessing, a sole proprietor for the year ended 31/12/2015 was as follows:

DR CR
N N
Stock 1/1/2015 7,500
Cash 10,200
Capital 1/1/2015 199,750
Drawings 1,300
Bank 85,000
Land and Building 90,000
Furniture 1,500
Rent 500
Rates 350
Debtors/Creditors 5,600 15,000
Electricity 300
Cleaning 50
Carriage on purchases 150
Carriage on sales 210
Motor Vehicles 45,000
Purchases 40,500
131

Returns Outwards 1,200
Returns Inwards 400
Sales 85,000
Interest received 970
Stationery 1,000
Salaries 12,000
Insurance 360
301,920 301,920

Closing stock, 31/12/2015 N5,300. Prepare the business statement of profit or loss and statement of financial position.

4.0 CONCLUSION

The statement of financial position is part of the final accounts and it serves as the end points of books of accounts for sole traders. The statement of financial position consists of the assets and liabilities of the business, and owner’s equity or capital. The asset is divided into non-current assets, current assets, intangible assets, fictitious assets, and investments while the liabilities consists of non-current liabilities and current liabilities.

5.0 SUMMARY

The statement of financial position was defined while the components of the financial position namely non-current assets, current assets, intangible assets, fictitious assets, investments non-current liabilities, current liabilities and owner’s equity or capital were explained in this unit. Relevant examples were used to prepare typical statement of financial position.

6.0 TUTOR-MARKED ASSIGNMENT

Question 1: List and explain six components of statement of financial position.

Question 2: What are the similarities between a trial balance and a statement of financial position?

Question 3: The following trial balance was extracted from the books of

OlowolayemoOmooba on 31st December, 2013
N N
Premises 150,000
Motor Vans 27,810
Capital 1st January, 2013 483,720
Advertising 3,810
Postage 4,140
Purchases 2,054,550
Electricity 2,730
Salaries 85,110
132

Tenement Rate 3,030
Telephone 1,020
Furniture 33,120
Sales 2,204,940
Returns 1,680 11,760
Bad Debts 780
Insurance 5,760
Commission received 52,500
Debtors 146,460
Creditors 252,150
Cash in hand 10,560
Bank 113,760
Stock 1st Jan. 2013 360,750
3,005,070 3,005,070

Additional information is as follows:

i. The stock at 31st December 2013 was N323,610

ii. Depreciation is as follows: Premises at 5 per cent Motor vans at 10% per annum

Furniture at 10% per annum

Prepare statement of profit or loss for the year ended 31st December 2013, and statement of financial position as at that date.

7.0 REFERENCES/FURTHER READINGS

Accounting Technicians Scheme West Africa (2009).Basic Accounting Processes and System Part 1, Study Pack. Lagos: Abina Publishers

Garbutt, D. (1984), Carter’s Advanced Accounts “7th Edition”. London: Pitman Publishing Limited

Igben, R. O. (2014), Financial Accounting Made Simple. Lagos: ROI Publishers

Jat, R.B. and Jugu, G.Y. (2008).Modern Financial Accounting: Theory and Practice. Jos:

Ehindero (Nig.) Limited

Olanrewaju, Oluseyi (2012) IFRS PAL – Handy Approach. Lagos: Dimkem Publications Limited.

Oluyombo, Onafowokan (2016) Financial Accounting With Ease (3rd Edition). Magboro:

Kings & Queen Associates

Soyode, A. (1980), Financial Accounting: Principles and Practice. Uk: Graham Burn. The Institute of Chartered Accountants of Nigeria, (2006).Fundamentals of Financial Accounting.Foundation Study Pack. Lagos: Vikas Publishing Limited

133

UNIT 19: END OF YEAR ADJUSTMENTS IN FINAL ACCOUNTS

CONTENTS

1.0 Introduction

2.0 Objectives

3.0 Main Content

3.1 Accruals

3.2 Prepayments

3.3 Provisions

3.4 Reserves

4.0 Conclusion

5.0 Summary

6.0 Tutor-Marked Assignment

7.0 References/Further Readings

1.0 INTRODUCTION

A business is a legal entity whose operations and financial transactions are continuous in nature from one year to another. As a result, there are financial transactions in business organisations that cannot be fully completed within a year and more importantly at the end of the accounting year. Furthermore, the accounting year of organisations vary from one company to another; as a result some transactions will not fall within the same accounting year for two or more companies. Events like this lead to adjustments in the final accounts at the end of the accounting period.

Business involves the giving and taking of credits, while all expenditure and income for a particular year may not be fully paid and received as at the year end. However, those incomes due but not yet received and expenses due for settlement but not yet paid as at the year-end should be brought into the final accounts to show a true and fair position of the company through proper adjustment. This unit focuses on end of year adjustments which include prepayments, accruals, reserves and provisions.

2.0 OBJECTIVES

At the end of this unit, you should be able to:

i. Explain entries on accruals

ii. Discuss entries for prepayments

iii. Understand the concept of bad debts

iv. Explain the entries for provisions

v. Recognise and treat increase and decrease in provisions

vi. Explain reserves

vii. Prepare final accounts with end of year adjustments

134

3.0 MAIN CONTENT

3.1 Accruals

These are services and goods that have been consumed or enjoyed during the year but which payment has not been made either in full on in part at the end of that financial year. e.g. Government water usage of N15,000 for December 2015, but bill was received in January 2016. It means that the amount was owed as at December 31, 2015 and form part of the accruals to be adjusted for in the final accounts. Accrual can also be called owing or due. Any amount owing on expenses is added to that expense in the statement of profit or loss and reflected under current liabilities in the statement of financial position. Accruals are necessary in order to allocate all expenses relating to an accounting period to that period.

Example 1: Big Success Limited paid the following expenses by cash amongst others during the accounting year ended 31st December 2015.

Office rent N 72,080
Office salaries N 45,800

A further examination of the company’s records shows that:

i. Office salaries of N4,000 was due as at 31st December 2015..

iv. Office rent of N32,600 owed has not been paid by 31st December 2015. You are required to show how the accruals will be treated in the final accounts.
SUGGESTED SOLUTION TO EXAMPLE 1

Method 1: This entails the preparation of an account for items affected by the accruals. Accrued expenses are credit balance in the ledger as depicted in the account below. With this method, the total of expenses paid and those owed will be posted to the statement of profit or loss and statement of financial position.

Office rent account
Cash 72,080
Balance c/d 32,600 Statement of profit or loss 104,680
104,680 104,680
Balance b/d 32,600

Office salaries account
Cash 45,800
Balance c/d 4,000 Statement of profit or loss 49,800
49,800 49,800
Balance b/d 4,000

135

Big Success Limited
Statement of Profit or Loss (Extract)
N
Office rent 104,680
Office salaries 49,800
Big Success Limited
Statement of Financial Position (Extract)
Current liabilities:
Office rent due 32,600
Office salaries owed 4,000

Method 2: This method does not require the preparation of an account for items affected by the accruals. The amount paid and the accrual will be posted to the statement of profit or loss separately while the accrued expenses will be reflected in the statement of financial position under the current liabilities.

Big Success Limited
Statement of Profit or Loss (Extract)
Office rent 72,080 N

Add accrual 32,600 104,680
Office salaries 45,800
Add owing 4,000 49,800
Big Success Limited
Statement of Financial Position (Extract)
Current liabilities
Office rent due 32,600
Office salaries owed 4,000
3.2 Prepayments

These are goods and services that have been paid for, but the benefit is yet to be enjoyed or consumed either in full or in part. A good example is payment of rent in advance. Prepayment or payment in advance or amount prepaid is deducted from the total payment in respect of the expense in statement of profit or loss and the prepayment is recorded under current assets in the statement of financial position. Prepayment is to enable the organisation not to understate the profits for the accounting period in which the prepayment occurs.

136

Example 2: No Loss Enterprises paid the following expenses by cheque during the accounting year ended 31st December 2014.

Office rent N 156,650
Water rate N 50,000

The information below was provided as at 31st December 2014

i. Three months office rent of N26,650 for January to March 2015 are included in the

iv. N5,000 was paid in advance to the water board as water rate.

You are required to show how the above transactions will be treated in the final accounts.

SUGGESTED SOLUTION TO EXAMPLE 2

Method 1: This entails the preparation of accounts for items affected by the prepayments.

Office rent account
Bank 156,650 Statement of profit or loss 130,000
Balance c/d 26,650
156,650 156,650
Balance b/d 26,650

Account Details

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Account Name: --

Account No: --

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		Water rate account				
Bank	50,000					Statement of profit or loss	45,000			
							Balance c/d	5,000			
		50,000						50,000			
Balance b/d	5,000									
								
			No Loss Enterprises				
	Statement of Profit or Loss (Extract)				
				N						
Office rent	130,000				
Water rate	45,000					
			No Loss Enterprises				
	Statement of Financial Position (Extract)				
Current assets:											
Office rent prepaid	26,500					
Water rate in advance	4,000					




137
 

Method 2: This method does not require the preparation of an account for items affected by the prepayments.

					No Loss Enterprises
		Statement of Profit or Loss (Extract)
			N			N
Office rent	156,650	
Less prepayment		26,500	130,000
Water rate	50,000		
Less payment in advance	5,000		50,000
					No Loss Enterprises
		Statement of Financial Position (Extract)
Current assets:					
Office rent prepaid				26,500	
Water rate in advance				4,000	
3.3	Provisions					

Provisions are important because most business transactions are done on credit. As long as organisations relate with their suppliers and customers on credit basis, bad debts and other provisions are inevitable.


3.3.1	Bad Debts

Bad debts are debts that have gone bad and there are no chances of the debt being recovered. Bad debts could be as a result of death of the debtor, bankruptcy of a debtor, mental illness of a debtor, lack of good credit control procedures, disagreement as to amount due between the debtor and the creditor and closure or permanent negative disruption of the debtors business.


Bad debt is an expense to be charged against the profit for the year it occurred. This is done by debiting the bad debt account and credit the debtors account to reduce the value of the debtors after the bad debt. It is the net debtors figure after adjusting for bad debts that will reflect in the statement of financial position.


Example 3: Goodness Limited decided to write off N4,000 and N3,000 as bad debts for two customers namely Lola and Doyin respectively for year 2014. The balances on these account for year 2013 are Lola N48,400 and DoyinN11,500.



Show the journal, ledgers, statement of profit or loss and statement of financial position to record the above.

138
 


	SUGGESTED SOLUTION TO EXAMPLE 3									
				Journal											
													Dr.			Cr.		
	Bad debts									4,000									
	Debtors - Lolade											4,000						
	Being debt written off a debtor account									
	Bad debts									3,000									
	Debtors – Doyin											3,000						
	Being bad debt on a debtor account											
	Statement of profit or loss	7,000									
	Bad debts											7,000						
	Being bad debts for the year written off									
	Ledgers																			
						Bad debts Account									
	Debtors – Lolade	4,000												
	Debtors – Doyin	3,000			Statement of profit or loss	7,000	
	7,0007,000																				
																		
						Debtors Account – Lolade									
	Bal b/d	48,400						Bad debt	4,000					
												Bal c/d	44,400								
					48,400									48,400					
	Bal b/d	44,400															
						Debtors Account – Doyin									
	Bal b/d	11,500						Bad debt	3,000						
												Bal c/d	8,500						
		11,50011,500																		
	Bal b/d	8,500																
				Statement of Profit or Loss									
	Expenses:					N													
	Bad debts	7,000												
												139									
 
	Statement of Financial Position
Current assets:		N
Debtors	59,900	
Less bad debts	7,000	52,900

3.3.2	Provision for Bad or Doubtful Debts

Doubtful debts are those debts which in the opinion of management of an organisation may not be fully recovered. The provision for such debt is largely subjective. It is an estimation of debts of which their probability of recovery is below hundred percent. To avoid sudden bad debts, business organisations have devised a way of guarding against this by creating provision for bad or doubtful debt in their records for debts that they are not sure of being able to collect.


Provision for doubtful or bad debts will be charged on the debtors after the deduction of the bad debts for the period or after the bad debts have been written off.

Example 4: A company provide 5% as provision for bad debts. As at year 2015, the debtors balance was N60,000 and bad debt to be written off was N6,000. What is the doubtful debt provision for the year?


SUGGESTED SOLUTION TO EXAMPLE 4

N

Debtors	60,000	
Less bad debt	(6,000)
	54,000	

Provision for doubtful debt is N54,000 x 5%	=	N2,700


The accounting entry for provision for doubtful debt is a function of the time the provision occurs. It can take two forms namely, the first year and subsequent years.

Where the provision is for the first year, the amount will be charged against the profit by:

Debiting - Statement of profit or loss Crediting - Provision for doubtful debts account

The provision will be deducted from the debtors after deducting bad debts in the statement of financial position.

Example 5:Oluwaseyi Investment decided to provide 7% as provision for bad debt on his debtors figure of N88,200. Show this in form of a journal, ledger and statement of financial position extract.







140
 
SUGGESTED SOLUTION TO EXAMPLE 5		
	Journal						
				Dr.	Cr.	
Statement of profit or loss	6,174		
Provision for bad debt account					6,174	
Being 7% provision for bad debt on debtors		
Ledgers						
	Provision for bad debt account		
							
			Statement of profit or loss	6,174
	Statement of profit or loss		
Expenses						
Provision for bad debt	6,174				
		Oluwaseyi Investment		
	Statement of Financial Position (extract)	
Current asset:		N				
Debtors	88,200		
Less provision for bad debt		6,174			
			82,026				


Where the provision is for subsequent years, it can either be an increase over what was provided for in previous year (which is an expenses) or a decrease over previous year provision (which is an income). Increase can occur if the closing provision is higher than the opening provision for doubtful debts.

Example 6: The bad debt provision for a company in 2014 and 2015 are N2,000 and N2,800 respectively. Show the above entries using ledgers and statement of profit or loss as at 2015.


SUGGESTED SOLUTION TO EXAMPLE 6

Provision for bad debt Account
				Bal b/d	2,000	
Bal c/d	2,800		Statement of profit or loss	800	
		2,800			2,800	
				Bal b/d	2,800	
						

Statement of profit or loss

Expenses	
Provision for bad debt - increase	800
	141
 

Decrease in provision can occur if the closing provision is lower than the opening provision for doubtful debts. This could be a result of improved payment habits of the customers and/or reduction in credits granted to customers.

Example 7: Provision for doubtful debts of a company was N1,550 and N1,300 for year 2010 and 2011 respectively. By means of ledger and statement of profit or loss, show how this will appear in the books.


SUGGESTED SOLUTION TO EXAMPLE 7

Provision for Doubtful Debts Account
	Statement of profit or loss	250		Bal b/d	1,550
	Bal c/d			1,300			
	1,5501,550					
	Bal b/d						1,300
					
			Statement of Profit or Loss	
	Other income:				
	Provision for doubtful debts - decrease		250
	3.4	Reserves				

These are amounts set aside out of profit earned by a company and constitute part of shareholders fund. Reserves may be voluntarily created by the directors or statutorily created. We have revenue, capital and general reserves. Reserves are posted to the statement of changes in equity and statement of financial position as appropriate for limited liability company.

3.4.1	Revenue Reserve

This type of reserve is distributed to the shareholder and other capital providers in form of debenture interest, retained profit etc.

3.4.2	Capital Reserves

They are non-distributable reserves that are retained to comply with certain laws or for accounting requirement. e.g. capital redemption reserve fund, share premium, revaluation reserve etc.

3.4.3	General Reserves

They are reserves not set aside for a specific purpose.

Example 8: The trial balance below is drawn from the books of Palace Ventures for the year ended 31st March 2016.




142
 
	DR.	CR.
	N		N
Capital account			17,000
Drawing account	8,400		
Purchases	38,000		
Sales			60,000
Discounts	2,400		1,900
Office rent	1,080		
Travelling expenses	960		
Warehouse rent	1,320		
Fire insurance	180		
Insurance on purchases	240		
Office salaries	4,800		
Wages	720		
Carriage inwards	160		
Carriage outwards	140		
Furniture & fittings	3,600		
Opening stock	4,000		
Trade debtors	17,400		
Sundry creditors			15,020
Cash at bank	10,224		
Cash in hand	110		
Bank charges	36		
General expenses	150		
	93,920		93,920
Note the following:			
i.	Office salaries of N40 due as at 31st March 2016.

ii.	Closing stock was N4,800

iii.	Sales of N600 made on credit during the period were omitted in the record keeping process

iv.	Office rent of N360 owed has not been paid by 31st March 2016

v.	Bank charges of N12 were not entered in the books

vi.	You are to prepare statement of profit or loss and statement of financial position for the year.

















143
 
SUGGESTED SOLUTION TO EXAMPLE 8

						Palace Ventures
			Statement of profit or loss
	For the year ended 31st March 2016
						N			N			
Sales							60,000			
Omitted sales								600			
Total sales							60,600			
Opening stock	4,000						
Purchases	38,000						
Carriage inwards		160						
	42,160						
Less closing stock		4,800						
Goods available for sale	37,360						
Wages	720						
Purchases insurance	240						
Warehouse rent	1,320						
Cost of gods sold								39,640
Gross profit							20,960
Other income												
Discount received								1,900	
							22,860
Discount allowed							2,400				
Office rent	1,080								
Add accrual	360			1,440				
Travelling expenses							960				
Fire insurance							180				
Office salaries	4,800								
Add owing	40				4,840				
Carriage outwards							140				
Bank charges	36									
Add omission		12					48				
General expenses		150			10,158			
Net profit								12,702



SELF ASSESSMENT EXERCISE

1.	(a)Define bad debts.

(b)	What is the objective of making provision for bad debt?



144
 

2.	BabafidauBim is the owner of Babafem Enterprises. The trading concerns sells on credit to a sizeable number of the well-known customers. The company has been experiencing bad debts and commenced providing for such debts from the last financial year (1989). On 1st January, 1990 the provision for bad debts was N2,570. During the year N680 of these debts actually proved uncollectible and the sum of N1,409 proved collectable. The sum of N315 debts that became bad were not provided for. At the end of the year a new provision of N3,498 is required.

Show the treatment of provision for bad debts and bad debts in the ledger and statement of profit or loss.


4.0	CONCLUSION

End of year adjustments in the final accounts are necessary to show the true and fair position of the financial statements. As such, the end of the year adjustment in the statement of profit or loss and the statement of financial position include how entries are passed in both statements for accruals, prepayments, bad debts, reserves and provisions for doubtful debts - including the recognition and treatment of increase and decrease in provisions.

5.0	SUMMARY

This unit has discussed in details the end of year adjustments in final accounts. It specifically examined bad debts, provisions for doubtful debts, reserve, prepayments and accruals with relevant discussion and question, and how they are treated in the statement of profit or loss and the statement of financial position.

6.0	TUTOR-MARKED ASSIGNMENT

Question 1:	Madam Florence provide the following information

Year	Debtors	Bad debts
2000	120,000	-
2001	155,000	14,000
2002	62,500	2,500

The debtors’ figures are before bad debts, while provision for bad debts is estimated at 10 percent for each year. Prepare the following:

(a)	Bad debt account.

(b)	Provision for bad debts account

(c)	Statement of profit or loss

(d)	Statement of financial position extract for the three years.

Question 2: The following were extracted from the books of Orelope and Co. on 31st December 2003.

	N
Debtors – without any adjustment	58,500
Provision for bad debts	5,460
	145
 
Bad debts	1,560

The company’s provide for 10% as doubtful debts.

You are required to prepare

(a)	Provision for doubtful debts account.

(b)	Statement of profit or loss.

(c)	Statement of financial position.

Question 3:Emaka is a sole trader, who has no knowledge of accounting. However, some of
his business transactions are recorded in a personal diary. Financial records as at 1st January
2015 are as follows:

	N
Rent owing to landlord	500
Stock	31,000
Amount owing by Emaka to suppliers	11,500
Debtors	7,500
Capital	47,100
Non-current assets	30,000
Bank	3,100
Depreciation to date	12,500

During the year, an analysis of his bank statement revealed:

Cheques drawn:

To suppliers	48,650
Rent	3,500
Other expenses	10,250
Drawings	11,000
Electric oven	13,000
Lodgement:	
From customers	75,900
Amount inherited	5,500

A further look at his diary showed that before banking the cash and cheques received from customers, N5,000 was paid out for purchases and N1,000 for personal drawings. Rent is N5,000 a year.


As at 31st December 2015 the following figures were computed.
Debtors	N11,500


Stock	N39,000


Creditors	N19,750


Depreciation is at 15% on the reducing balance method.


146
 

Required:
(a)	Statement of profit or loss for the year ended 31st December 2015.

(b)	Statement of financial position as at that date.

Show all workings

7.0	REFERENCES/FURTHER READINGS

Accounting Technicians Scheme West Africa (2009).Basic Accounting Processes and System Part 1, Study Pack. Lagos: Abina Publishers

Garbutt, D. (1984), Carter’s Advanced Accounts “7th Edition”. London: Pitman Publishing Limited

Jat, R.B. and Jugu, G.Y. (2008).Modern Financial Accounting: Theory and Practice. Jos:

Ehindero (Nig.) Limited

Olanrewaju, Oluseyi (2012) IFRS PAL – Handy Approach. Lagos: Dimkem Publications Limited.

Oluyombo, Onafowokan (2016) Financial Accounting With Ease (3rd Edition). Magboro:

Kings & Queen Associates

Soyode, A. (1980), Financial Accounting: Principles and Practice. Uk: Graham Burn. The Institute of Chartered Accountants of Nigeria, (2006).Fundamentals of Financial Accounting.Foundation Study Pack. Lagos: Vikas Publishing Limited






































147
 
UNIT 20:	ACCOUNTING TREATMENT OF CONTROL ACCOUNTS

CONTENTS

1.0	Introduction

2.0	Objectives

3.0	Main Content

3.1	Control Account System

3.2	Merits of Control Account

3.3	Working of Control Account

3.4	Debtors Control Account:

3.5	Creditors Control Account

3.6	Debtor’s Statement of Account

3.7	Creditor’s Statement of Account

4.0	Conclusion

5.0	Summary

6.0	Tutor-Marked Assignment

6.0	References/Further Readings

1.0	INTRODUCTION

As businesses keep growing, the number of accounts kept will be on the increase and this will of necessity require more personnel to work on the preparation of such accounts. When the various accounts are prepared, there will be need to harmonise these accounts into one at a particular period to check the arithmetical accuracy of what has been posted to individual accounts. The process of harmonising all individual accounts in the same class will give rise to a control account which serves as the total or summary of what happens within that period for those accounts in the same class.

2.0	OBJECTIVES

At the end of this unit, you should be able to:

i.	Define Control Account

ii.	Explain Types of Control Accounts

iii.	Discuss Merits of Control Accounts

iv.	Prepare Debtors Control Account:

v.	Prepare Creditors Control Account

vi.	Prepare Debtor’s Statement of Account

vii.	Prepare Creditor’s Statement of Account

3.0	MAIN CONTENT

3.1	Control Account System

Control account is a summary of customers or suppliers ledger in total. The balance on the control account under normal circumstance must equal the addition of individual customers



148
 

or suppliers account at a particular date or period. Another name for control accounts is total account, because the account is maintained on total basis.

Due to mistakes and errors in the completion of the control account and/or individual customers or suppliers account, the control account may not agree with the addition of all the individual customers or suppliers balances, and this will lead to reconciliation. It should be noted that any entry on the debit side of an account will also be on the debit side of the control for such an account, likewise the credit side.

There are two major types of control accounts namely

i.	Sales ledger control or Debtors control account

ii.	Purchases ledger control or Creditors control account

3.2	Merits of Control Account

The following are the merits of control accounts

i.	It allows homogeneous accounts to be grouped together.

ii.	Useful in detecting fraud and errors relating to debtors and creditors.

iii.	It can be used to detect missing figure.

iv.	Allows for quick preparation of draft annual account.

v.	It also helps to localise errors in a trial balance because such errors can be easily traced to a set of account(s).

3.3	Working of Control Account

With simple illustration about customers, readers will grasp the working of control account systems.

Assuming there is a company with over two thousand customers located all over Nigeria and neighbouring countries. A separate account will be maintained or kept for these customers individually where their transactions with the company are recorded. At the end of the month, the account will be closed for the month to know what each customer owes.

The control account to be prepared will only record the total of each transaction as it affects all the customers for the month and the balance on the control account should be equal to the sum of the balance on the individual customers account.

3.4	Debtors Control Account

Any transactions that will increase the customers’ indebtedness to the organisation are debited to the debtors control account while those that will reduce the debts are credited to the same account. At the end of the period, the sales ledger control account or debtors control account will have a debit balance to show how much is due from all the credit customers. Debtors control account is not used for cash customers. The format for debtors control account is as prepared below.




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3.4.1	Format of Debtors Control Account

Sales Ledger Control Account
Bal. b/d	xx		Receipts from customers	xx	
Credit sales	xx		Discount allowed	xx	
Dishonoured cheque	xx		Returns inward	xx	
Bills receivable dishonoured	xx		Bad debts	xx	
Cash refund to debtors	xx		Creditor control contra	xx	
Interest charge to customer	xx					
Bad debt written off recovered	xx		Bal. c/d	xx	
							
	xxx			xxx	
Bal. b/d	xx					
							

3.5	Creditors Control Account

The transactions that will increase the financial obligation to the supplier will be credited to the creditors control account. Same account will be debited with those transactions that will reduce the obligation like discount received, returns outwards and payments to creditors.

3.4.1	Format of Creditors Control Account

Purchases Ledger Control Account

Cash paid	xx		Bal. b/d	xx	
Returns outward	xx		Credit purchases	xx	
Discount received	xx		Dishonoured cheque	xx	
Cheque paid	xx		Bills payable dishonoured	xx	
Debtors control contra	xx		Interest charge by supplier	xx	
Bal c/d	xx			___	
						
	xxx			xxx	
				Bal. b/d	xx	
						


Example 1: Ascertain by means of control accounts, the amount of ‘purchases’ and ‘sales’ for the year ended 31st, December 2015

Total for the year:		
		N
Returns outwards	95
Cash payment to creditors for good supplied	5,625
Returns inwards	205
Cash received from debtors for sales	8,892
Bills receivable	1,200
Discount received	527
Bills payable	1,702
Discount allowed	546
	150	
 
Bad debts	253
Amount due from debtors set off by contra	
against amount due to him for supplies	340
At January 1, 2015	
Sundry creditors for goods supplied	1,226
Sundry debtors for sales	2,130
At 31st December 2015	
Sundry creditors for goods supplied	1,339
Sundry debtors for sales	2,860

SUGGESTED SOLUTION TO EXAMPLE 1

Debtors Control Account
Bal. b/d	2,130	Returns inwards	205			
Credit sales (bal figure) 12,166	Cash from debtors	8,892				
				Bills receivable	1,200				
				Discount allowed	546			
				Bad debts	253			
				Set-off	340			
	_____			Bal. c/d	2,860				
	14,296		14,296					
Bal. b/d	2,860								
	Creditors Control Account					
Returns outwards	95		Bal. b/d	1, 226	
Payment to creditors	5, 625			Credit purchase (bal figure)	8, 402	
Discount received	527									
Bills payable	1, 702									
Set-off	340									
Bal. c/d	1, 339									
	9, 628						9, 628	
				Bal. b/d	1, 339	
										

The credit sales and credit purchases are balancing figures.

Example 2: The following balances were extracted from the books of Top Performers International Limited as at 31st December 2015.

		N
Opening balance: Debtors	4,000
	Creditors	3,300
Purchases:	on credit	16,500
	in cash	7,400
		151
 
Sales:	on credit	25,500
	for cash	10,200
Payment to creditors	15,000
Receipt from debtors	23,600
Cash discount allowed	540
Cash discount received	400
Trade discount allowed	12,000
Returns inwards	760
Returns outwards	215
Contra settlements	500
Bad debts written off	85
Provision for bad debts	120
Bills receivable	600
Cheques dishonoured	45
Bills payable		1, 020
You are required to prepare:	

i.	Sales Ledger Control Account:

ii.	Purchases Ledger Control Account

SUGGESTED SOLUTION TO EXAMPLE 2

Top Performers International Limited

Sales Ledger Control Account

As at 31st December, 2015

Bal. b/d	4,000	Receipt from debtors	23,600	
Sales on credit	25,500		Discount allowed	540	
Cheque dishonoured	45	Returns inwards	760
			Contra settlement	500
			Bad debt written off	85
			Bills receivable	600
	_____	Balance c/d	3,460	
	29,545			29,545			
Bal. b/d	3,460					


















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Top Performers International Limited

Purchases Ledger Control Account

As at 31st December, 2015

							
Payment to creditors	15,000		Bal. b/d	3,300	
Discount received	400		Purchases on credit	16,500	
Returns outwards	215					
Contra Settlement	500					
Bills payable	1,020					
Bal. c/d	2,665			_____		
		19, 800			19,800	
				Bal. b/d	2,665	
							

Trade discount is given at the point of sales and the amount is deducted before arriving at the sales figure to be recorded in the books of account. Hence it is not posted in the control account.

Example 3: SaniDongo Ventures maintains self-balancing ledgers. From the details given below you are required to prepare the control accounts for purchases and sales ledgers for the year ended 31st, December 2015

		N
Purchases	153,270
Bad debts written off	2,200
Bills payable accepted	21,700
Bills receivable drawn	50,200
Interest charged to customers	70
Purchases returns	890	
Payment to creditors	125,380
Receipts from debtors	143,080
Bills receivable dishonoured	5,750
Discount allowed	5,280
Discount receivable	3,270
Sales returns	3,010
Cash refund to debtors	750
Cheques from debtors returned unpaid	250
Sales and Purchases ledger contra	10,170
Bills receivable discounted	47,850
Bills payable retired for non-payment	1,500
Sales	200,510
Bad debts recovered (included in cash from debtors)	80
Creditors ledger balance at 31st December, 2015	50,860
Debtors ledger balance at 31st December, 2015	68,180
Purchases ledger control balance at 1st January, 2015	57,500
Sales ledger control balance at 1st January, 2015	74,710
153		
 
SUGGESTED SOLUTION TO EXAMPLE 3

SaniDongo Ventures

Purchases Ledger Control Account

As at 31st December, 2015

Bills payable	21,700			Bal. b/d		57,500
Purchases returns	890			Purchases		153,270
Payment	125,380			Bills repayable retired		1,500		
Discount receivable	3,270								
Sales ledger contra	10,170								
Bal. c/d		50,860								
	212,270					212,270		
						Bal. b/d		50,860
			SaniDongo Ventures					
			Sales Ledger Control Account					
			As at 31st December, 2015					
Bal. b/d	74,710			Bad debts		2,200	
Dishonoured bills	5,750			Bills receivable		50,200
Cash refund	750			Receipts		143,080
Returned cheques	250			Discount allowed		5,280
Sales	200,510		Sales returns		3,010
Bad debt recovered	80			Purchases ledger contra	10,170
Interest charge		70	_	Bal. c/d			68,180
		282,120					282,120
Bal. b/d	68,180								
									

Bills receivable discounted has nothing to do with the control account because the company can as well wait till the bill is matured for payment instead of discounting it.

3.6	Debtor’s Statement of Account

It is a statement sent periodically, usually once a month by a seller to his customers, showing the position of their accounts up to a certain date. It shows the particulars of invoices, debit notes and credit notes originated from the seller to the buyer during a given period. It also includes payments made and how much the customer owes. At times, the age of the debt may be revealed in the statement. The statement is kept by the buyer for reference and settlement purpose.

A debtor’s statement can also be regarded as a memorandum statement showing the details of unpaid invoices for each debtor, which is supposed to agree with the total amount outstanding against the customer in the general ledger. It is also expected to give some information about the customer and analyse the amount outstanding at the end of the month according to their age.

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Example 4: You have been engaged as Account Officer of Efiong Enterprises. Your immediate assignment is the preparation of monthly Statements of Account. From the following information, you are required to prepare the statement of account of B. Dabir, a supplier.

Type of	Date	NumberParticulars	Amount
Document	2016			N
Invoice	Jan. 2	024	Goods Supplied	4,820
Invoice	Jan. 3	027	Goods Supplied	8,240
Debit Note	Jan. 4	018	Goods Returned	360
Receipt	Jan. 5		A2845	10,820
Invoice	Jan. 6	058	Goods Supplied	6,452
Invoice	Jan. 12	086	Goods Supplied	5,462
Invoice	Jan. 18	098	Goods Supplied	6,325
Debit Note	Jan. 21	021	Goods Returned	2,132
Invoice	Jan. 28	0123	Goods Supplied	3,256
Receipt	Jan. 29		A3451	15,584

Additional information:

i	The last statement sent to B. Dabir showed that Efiong Enterprises owed him N7,215 at 1st Jan. 2016

ii	A cheque for N3,500 in favour of B. Dabir dated January 30, 2016 has just been dispatched.


SUGGESTED SOLUTION TO EXAMPLE 4

Efiong Enterprises

To:						
B. Dabir			No. A807		
Address …………………..			Date……………….	
……………………………..					
		Statement of Accounts		
Date	Particulars	Ref:	Debit	Credit		Balance
Jan.						
2016			N	N		N
1	Balance b/f				7,215	(cr)
2	Goods Invoice	024		4,820	12,035	(cr)
3	Goods Invoice	027		8,240	20,2759 (cr)
4	Returns Invoice	018	360		19,915	(cr)
5.	Receipt No	A2845   10,820		9,095 (cr)
6.	Goods – Invoice	058		6,452		15,547 (cr)
			155			
 
12.	Goods – Invoice	086		5,462	21,009	(cr)
18	Goods- Invoice	098		6,325	27, 334 (cr)
21	Returns D/Note	021	2,132		25, 202 (cr)
28	Goods – Invoice	0123		3,256	28,458	(cr)
29	Receipt No	A3451	15,584		12,874	(cr)
30	Cheque No		3,500		9,374	(cr)
	Prepared by ………………		Approved by ……………	
	Date ……………………….		Date ……………………..	



3.7	Creditor’s Statement of Account

It is a statement sent periodically usually once a month by a buyer to his suppliers, showing the position of their accounts up to a certain date. The statement gives particulars of invoices, debit notes and credit notes received from the supplier during a given period. Details of payments made to the supplier and how much is outstanding to the supplier are also shown. The creditor’s statement is very useful for reconciliation purposes.

Example 5:Mr. Favour is a supplier to whom we owed a balance of N4,075 on March 1, 2012


March 2. We paid the outstanding balance by cheque, less N204 discount March 13. Mr. Favour supplied goods value at N8,500


March 17. He supplied more goods valued at N1,650 March 18. We returned goods to Mr. Favour valued at N575


March 19.	He gave an allowance on goods that needed repackaging because of damage in transit N840


March 27	He supplied goods valued N13,250 and also charged insurance on goods in transit N 50


You are required to

i	Prepare creditors statement of account of Mr. Favour as at 31 March 2012.

ii	Post the above transactions from the month into his ledger account.

SUGGESTED SOLUTION TO EXAMPLE 5
















156
 
Creditor’s Statement

Mr. Favour

Statement of Account

Date: March 31, 2012		Account No:					
Date	Description		Ref	Debit		Credit		Balance
							N		N		N	
Mar. 1	Balance b/f							4,075	
Mar. 2	Bank Cheq No				3,871			204	
Mar. 2	Discount				204			0	
Mar. 13	Invoice  Inv. No		8,500	8,500	
Mar. 17	Invoice					1,650		10,150		
Mar. 18	Debit note – returns	575			9,575	
Mar. 19	Debit not – allowance	840			8,735	
Mar. 27	Invoice					13,250	21,985	
Mar. 27	Insurance of goods in transit		150	22,135	
Prepared by ……………………….	Checked by …………………………..
		Mr. Favour Account						
Date		Particulars		Amount		Date	Particulars		Amount
Mar. 2		Bank		3,871			Mar.1	Bal. b/d	4,075	
2		Discount received		204			13	Purchases	8,500	
18		Purchases return		575			17	Purchases	1,650	
19		Purchase returns					27	Purchases	13,250	
		(Allowance)		840								
31		Bal. c/d		22,135						______		
				27,625							27,625	
							1	Bal. b/d	22,135	
												




SELF ASSESSMENT EXERCISE

1.	On January 1, 2011 the Sales Ledger balance of Ola was N2,400 debit while the bought Ledger balance was N970 credit. The following transactions took place in the month of January 2011.

		N
Credit sales	35,180
Bad debts	845
Dishonoured cheques	1,250
Credit purchases	18,060
Returns inwards	1,570
Bills receivable	4,500
	157	
 
Cash received from debtors	15,600
Cash paid to creditors	11,400
Discount allowed	450
Discount received	945
Cheques from debtors	7,500
Bills payable	2,150
Debit balance in bought ledger transferred to	
sales ledger	260
Discount allowed but subsequently disallowed	150
Discount received but subsequently withdrawn	145

Prepare:

a.	Total Debtors Account

b.	Total Creditors Account

2.	The net total balances extracted from Tipper’s purchase ledger on 31st March 2007 amounted to N12,560, which did not agree with the balance on the purchase ledger control account. The audit revealed the following errors and, when the appropriate adjustments had been made for these, the books balanced.

1.	A debit balance of N40 in the purchase ledger had been listed as a credit balance.

2.	Hector had been debited for goods returned to him, £90, and no other entry had been made.

3.	The purchase day book had been overcast by N100

4.	Credit balances on the purchase ledger amounting to N480 and debit balances amounting to N24 had been omitted from the list of balances.

5.	A payment of N8 to Tiger for a cash purchase of goods had been recorded in the petty cash book and posted to his account in the purchase ledger, no other entry having been made.

6.	The transfer of N120 from Harrow’s account in the sales ledger to the credit of his account in the purchase ledger had not been entered in the control account.


You are required to prepare:

(a)	A statement reconciling the original net balances extracted from the purchase ledger with the corrected balance on purchase ledger control account, and

(b)	The purchase ledger control account showing the balance before the correction of the errors and the necessary adjustments thereon.

3.	The following balances have been extracted from the books of Jola Ade a sole trader
for the year ended 31st December, 2011.		
		N
Sales ledger balance, 1/1/11	4,936
Purchases ledger balance, 1/1/11	3,676
Sales	49,916	
	158	
 
Returns inwards	1,139
Cheques and Cash received from customers	46,490
Bad debts written off	99
Purchases	42,257
Returns outwards	1,098
Cheques paid to suppliers	38,765
Discount received	887
Cash paid twice in error to a supplier now refunded	188
Interest charged to a customer in respect of an	
overdue account	50

You are required to prepare the Sales Ledger and Purchases Ledger Control Accounts for the year ended 31st December, 2011.

4.	From the following particulars which relate to the month of January 1998, prepare a Sales Ledger Control Account:

	N
Sales	1,200,000
Returns Inward	12,500
Cash received from customers	1,152,000
Discount allowed	25,000
Bad debt written off	50,000
Interest charged on overdue accounts	2,000
Balance 1st January	514,100

(b)	The balance in this control account does not agree with the schedule of debtors extracted from the personal ledgers which amounted to N407,400.00 An investigation revealed the following:


i.	The sales day book had been overcast by N10,000.00 on one occasion and N5,000.00 on another.

ii.	Discount of N1,000.00 shown in the sales ledger has been omitted from the Cash Book

iii.	Balance totalling N8,800.00 have been left off the list of debtors as at 31st January

iv.	The credit side of one ledger account is N5,000.00 too much.

v.	Bad debt of N12,200.00 has been written off in sales ledger but no entry has been made in the General ledger.

vi.	N22,400.00 in the Purchases Ledger has been set off against a contra account in the Sales


Ledger but this is not recorded in both Control Account.

vii.Discount allowed of N600.00 entered in the cash book has not been carried to the customer’s account.


viii.	An item of N9, 300.00 in the Sales Day Book has been posted as N39, 000.00 in the customer’s account.


(a)	The balance in the Sales Ledger Control Account

(b)	The Schedule of Debtors


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4.0	CONCLUSION

Control account is a summary of customers or suppliers ledger in total. The balance on the control account under normal circumstance must equal the addition of individual customers or suppliers account at a particular date or period. Some of the merits of control accounts are: it saves time, it helps to prevent fraud, it allows homogeneous accounts to be grouped together and it can be used to detect missing figure.

5.0	SUMMARY

This unit focused on control accounts, and it was used to define control accounts, explain types of control accounts, discussed the merits of control accounts. In addition, debtors control account, creditors control account, debtor’s statement of account and creditor’s statement of account were prepared.

6.0	TUTOR-MARKED ASSIGNMENT

Question 1: The following balances were extracted from the books of Usen Stores on 31st December, 2006.

	N
Returns outwards	190
Cash payment to creditors for goods supplied	11,250
Returns inwards	410
Cash received from debtors for sales	17,784
Bills payable	3,404
Discount received	1,054
Bills receivable	2,400
Discount allowed	1,092
Bad debts	506
Balance of creditors for goods supplied as at 1/1/2006	2,678
Balance of debtors for sales as at 1/1/2006	4,260
Balance of creditors for goods supplied as at 31/12/2006	2,678
Balance of debtors for sales as at 31/12/2006	5,720

You are required to determine by Control Accounts, the amount of
(a)	Purchases as at 31st December 2006
(b)	Sales as at that date

Question 2: The net total balances extracted from Starling’s purchase ledger on 31st March 2014 amounted to N5,676, which did not agree with the balance on the purchase ledger control account. The audit revealed the following errors and, when the appropriate adjustments had been made for these, the books balanced.

1.	An item of N20, purchase from A. Brown. had been posted from the purchase day book to the credit of B. Brown’s account.




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2.	On 31st January 2014, Charles had been debited for good returned to him, N84, and no other entry had been made.

3.	Credit balances on the purchase ledger amounting to N562 and debit balances amounting to N12 had been omitted from the list of balances.

4.	Returns of N60 allowed by Austin had been correctly recorded and posted in Starling’s books. This item was later disallowed, entered in the sales return book, and credited to

Austin’s account in the sales ledger.

5.	The transfer ofN90 from the debit of Cook’s account in the sales ledger to the credit of his account in the purchase ledger had not been entered in the journal.

6.	The purchase day book had been undercast by N100

7.	A payment to Brook of N3 for a cash purchase of goods had been recorded in the cash book and posted to his account in the purchase ledger, no other entry having been made.


You are required to set out:

(a)	Journal entries, where necessary, to correct these errors, and

(b)	The purchase ledger control account showing the balance before the correction of the errors and the necessary adjustments thereon.

Question 3: The following transactions relate to a sales ledger for the year ended 31st December 2015

	N
Balance on sales ledger control 1 January 2015	8,952
Sales as per positing summaries	74,753
Receipts from debtors	69,471
Discounts allowed	1,817

The clerk in charge had prepared from the ledger cards a list of balances outstanding on 31st December 2015 amounting to N9,663 but this did not agree with the balance of the sales ledger control account. There were no credit balances on the ledger cards.


Investigation of the differences revealed:

i.	The bank statement showed credit transfers of N198 which had been completely overlooked


ii.	Journal entries correctly posted to the ledger cards had been overlooked when positing control account: debts settled by set off against creditors’ account N2,896, bad debts N640.

iii.	When listing the debtors balances three ledger cards with debit balances of £191 had been incorrectly filed and consequently had not been included in the list of balances.

iv.	The machine operator when posting a ledger card had incorrectly picked up an old balance of N213.50 as N13.50 and had failed to check her total balance.

v.	N1,173 entered in the cash book as a receipt from J. Spruce had not been posted as no account under that name could be traced. Later it was discovered that it was in payment for a car which had been used by the sales department and sold to him second-hand.



161
 
Required:

(a)	Prepare the sales ledger control account for the year ended 31st December 2015 taking into account the above adjustments.

(b)	Reconcile the clerk’s balance of N9,663 with the corrected balance on the sales ledger account.

(c)	Explain the benefits that accrue from operating control accounts.




7.0	REFERENCES/FURTHER READINGS

Accounting Technicians Scheme West Africa (2009).Basic Accounting Processes and System Part 1, Study Pack. Lagos: Abina Publishers

Garbutt, D. (1984), Carter’s Advanced Accounts “7th Edition”. London: Pitman Publishing Limited

Igben, R. O. (2014), Financial Accounting Made Simple. Lagos: ROI Publishers

Jat, R.B. and Jugu, G.Y. (2008).Modern Financial Accounting: Theory and Practice. Jos:

Ehindero (Nig.) Limited

Oluyombo, Onafowokan (2016) Financial Accounting With Ease (3rd Edition). Magboro:

Kings & Queen Associates

Soyode, A. (1980), Financial Accounting: Principles and Practice. Uk: Graham Burn. The Institute of Chartered Accountants of Nigeria, (2006).Fundamentals of Financial Accounting.Foundation Study Pack. Lagos: Vikas Publishing Limited





































162
 
UNIT 21:	BANK RECONCILIATIONS

CONTENTS

1.0	Introduction

2.0	Objectives

3.0	Main Content

3.1	Bank Reconciliation Statement

3.2	Merits of Bank Reconciliation Statement

3.3	Preparation of Bank Reconciliation Statement

4.0	Conclusion

5.0	Summary

6.0	Tutor-Marked Assignment

7.0	References/Further Readings

1.0	INTRODUCTION

Two column cash book was considered in unit 10 which shows how both cash and bank accounts of an organisation are treated in the account. The bank column records the transactions carried out in the company’s bank account. However, the balance of the bank column in the cash book may not be the same with the bank statement provided by the bank to the company. This unit examines how the bank column of the cash book and the bank statement balances can be reconciled including the factors responsible for differences in both balances that necessitate the preparation of bank reconciliation statement.

2.0	OBJECTIVES

At the end of this unit, you should be able to:

i	Define and explain bank reconciliation statement

ii.	Understand why cheques are dishonoured by the banks.

iii.	Prepare adjusted cash book

iv.	Bank reconciliation statement

3.0	MAIN CONTENT

3.1	BANK RECONCILIATION STATEMENT

Bank reconciliation is the process of making the balance on the bank column of a cash book to agree with the balance on the bank statement received from the bank. Put differently, bank reconciliation statement is a report prepared to show the process of agreeing entries in the bank statement with those in the cash book with a view to arriving at a reconciled balance.

The reconciliation becomes necessary as a result of differences between the cash book prepared by an account holder and the bank statement prepared by the bank. These differences are corrected using adjusted cash book and bank reconciliation statement.

Most of the time, the differences do not occur deliberately, but could be as a result of:


163
 
i.	Errors – These are mistake either by the bank and/or the customer.

ii.	Timing differences – These are due to unpresented cheques and uncredited lodgements.

iii.	Entries not brought to the notice of the company by the bank e.g. bank charges, interests, transfers, commission on turnover etc.

3.1.1	Unpresented cheques

These are cheques which have been issued for payment by a bank account holder but have not been presented for payment at the bank as at the date the bank prepared the bank statement. Unpresented cheques will appear on the credit side of the cash book but will not be seen on the debit column of the bank statement.

3.1.2	Uncredited lodgements

These are cheques deposited into the bank, but which have not been credited to the customer’s account by the bank as at the date of preparing the bank statement. This delay may be due to the cheque being banked other than at the customer’s branch of the bank or delay in cheque clearing system which may take up to three working days for local cheques to clear or even more for up-country cheques.

3.1.3	Direct transfers or Standing orders

These are payments made directly by the bank as a result of previous instructions given by the customer to the bank. They include an order to pay annual insurance premium, professional membership subscription etc.

3.1.4	Others

These include bank charges, account maintenance fee, interest on loan and overdraft account, dishonoured cheque etc. not brought to the notice of the account holder by the bank except through the bank statement.

3.1.5	Reasons for Dishonoured Cheques

A cheque may be dishonoured for the following reasons:

i.	If the cheque is not dated.

ii.	If the amount in words does not correspond to the amount written in figure on the cheque.

iii.	If the balance on the drawer’s account is not sufficient to accommodate the amount to be drawn with the cheque.

iv.	Cheque mutilations (i.e. unsigned alteration).

v.	Stale cheques: The date on the cheque is more than six months before it is presented to the bank for payment.

vi.	Irregular signature from the issuer

vii.	Unsigned cheques.

viii.	Cheque post-dated: Presenting cheque at the bank before the date written on it.

ix.	Notice of death of customer received by the bank.




164
 
3.2	MERITS OF BANK RECONCILIATION STATEMENT

i.	It aids the bank customer to monitor unpresented cheques, uncredited lodgements etc.

ii.	It assists in detecting errors that might have occurred in the cash book or in the bank statement.

iii.	It is useful in detecting fraud either from the bank or office

iv.	Where the bank reconciliation statement is prepared regularly, it helps to prevent fraud.

3.3	PREPARATION OF BANK RECONCILIATION STATEMENT

i.	Ensure that both cash book and bank statement are prepared up to the same date

ii.	Check off items in the cash book against the bank statement

iii.	Update the cash book by preparing adjusted cash book which will be credited with bank charges, commission on turnover, interest on overdraft and loans, dishonoured cheques, direct transfers, standing orders etc. Debit the adjusted cash book with direct payment to the bank like dividend received, interest on deposit account etc.

iv.	Check for errors which occur in the cash book and bank statement for corrections, and correct cash book errors. But include bank errors in the reconciliation statement for notification to the bank.

v.	Prepare the bank reconciliation statement using any of these two formats.

3.3.1	Format of Bank Reconciliation Statement Starting with Cash Book Balance

Big Life Ventures			
Bank Reconciliation Statement
As at 31st December 2015			
	N		
Balance as per adjusted cash book	x x
Add unpresented cheques	x x
	x x
Less uncredited lodgements/cheques	(x)
			
	x x
Add or deduct bank error(s)	x
		
Balance as per bank statement	x x


















165
 
3.3.2	Format of Bank Reconciliation Statement Starting with Bank Statement Balance

Unlimited Grace & Company
Bank Reconciliation Statement
As at 30th April 2016			
	N		
Balance as per bank statement	x x
Add uncredited cheques/lodgements	x x
	x x
Less unpresented cheques	(x)
			
	x x
Add or less bank error(s)	x
		
Balance as per cash book	x x

Where the balance from the bank statement or adjusted cash book is an overdraft, it does not change the formats above. Overdraft should be indicated in bracket to show that it is a negative balance.

A bank reconciliation statement will only contain those entries that are necessary for the bank to make correction in future bank statements. Adjusted cash book should take care of all necessary entries to be made by the company.

Example 1: Joy Investment Company has the following transactions in its cash book and bank statement for July 2015.

				Cash Book			
Lodgement into bank	Payment ordered			
Chq.	6789	14,000	Chq.	123456		4,000
Chq.	4591	12,000	Chq.	123457		6,000
Chq.	4826	9,500	Chq.	123458		7,500
Chq.	4725	19,000	Chq.	123459		12,500
Chq.	4228	9,000	Chq.	123460		8,000
Cash		66,000	Chq.	123461		1,500
		______		Bal.    c/d	90,000	
	129,500				129,500		
Bal. b/d	90,000						
				Bank Statement			
				Debit		Credit			Balance
Chq.	123459			12,500			(12,500)
Chq.	123458			7,500			(20,000)
Chq.	4826				9,500	(10,500)
Chq.	6789				14,000	3,500
Chq.	123460			8,000			(4,500)
Chq.	4826 contra	9,500			(14,000)
					166			
 
ICAN- Standing order	250		(14,250)
Account maintenance fee	500		(14,750)
Commission	1,750		(16,500)
Chq.   4228		9,000	(7,500)
Chq. 123457	6,000		(13,500)
Cash		66,000	52,500

You are required to

1.	Prepare an adjusted cash book

2.	Reconcile the adjusted cash book balance with bank statement.

Adapted from Institute of Chartered Accountants of Nigeria

SUGGESTED SOLUTION TO EXAMPLE 1

Joy Investment Company

Adjusted Cash Book

															
Bal. b/d	90,000				ICAN – Standing order	250	
						Account maintenance fee	500	
						Commission						1,750	
						Bal. c/d						87,500	
		90,000												90,000	
Bal. b/d	87,500													
						Joy Investment Company		
					Bank Reconciliation Statement		
						As at 31st July 2015		
							N					N			
Balance as per bank statement					52,500			
Add uncredited lodgements:											
Chq. 4591				12,000							
Chq. 4826				9,500							
Chq. 4725					19,000		40,500			
									93,000			
Less unpresented cheques:											
Chq. 123456				4,000							
Chq. 123461					1,500			5,500					
Balance as per cash book						87,500			







167
 

Example 2:Okoro’s cash book showed a debit balance of N3,344 on 31st January, 2016. His bank statement for January, 2016 however showed a credit balance of N3,424. On investigation it was discovered that.


i.	The opening balance on the cash book for the month had been wrongly brought down as N1,505 instead of N1,550.

ii.	Payment for rent N250 had been debited in the cash book

iii.	A customer had paid N600 direct into the bank

iv.	The bank had paid, on a standing order, N300 to an insurance company

v.	A cheque for N870 deposited in the bank on 25th January, was not credited until 3rd February, 2016.

vi.	Cheques paid to suppliers totalling N1,875, had not been presented for payment.

vii.	Cost of cheque book and other charges by bank totalling N90 had not been entered in the Cash Book.

viii.	The bank had paid a cheque of N680 in error from Okoro’s Account.


You are required to prepare:

a. Adjusted Cash Book

b. Bank Reconciliation Statement as at 31st January, 2016.

SUGGESTED SOLUTION TO EXAMPLE 2

Mr.Okoro				
Adjusted Cash Book		
Balance. b/d	3,344		Rent	500
Opening Bal. difference	45		Standing order	300
Direct payment	600		Bank charges	90
	____		Bal. c/d	3,099
	3,989			3,989
Bal. b/d	3,099			
	Mr.Okoro		

Bank Reconciliation Statement	
As at 31st January 2016	
	N
Balance as per bank statement	3,424
Add uncredited cheque	870
	4,294
Less unpresented cheque	1,875
	2,419
Add Bank error	680
Balance as per cash book	3,099
168	
 

The adjusted cash book was credited with rent of N500 because the account ought to have been credited initially with N250, but was debited, hence the need to credit the cash book with N500 to correct the error and also reflect N250 in rent account after the error.


SELF ASSESSMENT EXERCISE

1.	T. Emeka maintains a business bank account with Second Bank Nigeria Limited. The bank statement received for the month of March 1999 showed a balance of N14,265 to his credit while according to his Cash Book; he should have N13,380. Subsequent investigation revealed the following:

(a)	Two cheques A000111 for N3,400 and X222419 forN6,000 deposited to the bank on 28th March, 1999 were not credited by the bank until 2nd April, 1999.

(b)	A cheque for N6,500 issued to Jango Ltd. had not been presented for payment.

(c)	A cheque for N3,000 received from a customer in full settlement of a debt of N3,300 had been entered in the Cash Book at the full value of the debt.

(d)	Dividend of N650 from PZ Ltd. had been paid direct to the bank.

(e)	The bank deducted a total of N125 as its charges.

(f)	The bank had credited a cheque of N3,560 of V. Amaka in error to T. Emeka Account.


You are required to prepare:

(i)	Adjusted Cash Book; and

(ii)	A Bank Reconciliation Statement for the month of March, 1999.

2.	Define the bank reconciliation statement.

3.	On 31st July 2016 the bank statement of EneNyong showed a credit balance of N140,163. The Cash Book has a debit balance of N55,750 as at 31st July 2016. Cheques drawn prior to 31st July 2016 but not presented until after that date:-

	N
Abe Auto Works	2,920
Early Childhood School	80,117
UCT Stores	574
Abu Momoh	13,232

Cheques paid into the bank on 31st July 2016 but not credited until 4thAugust 2016 N11,619.


Bank charges and interest to 31st July 2016 not entered in the Cash Book N811.


Required:

Prepare the Bank Reconciliation Statement

4.	Discuss the process of preparing bank reconciliation statement.







169
 
4.0	CONCLUSION

Usually the balance of the bank column in the cash book may not be the same with the bank statement provided by the bank to the company. When this occurs, the two balances from the bank column of the cash book and the bank statement can be agreed by preparing a bank reconciliation statement.

5.0	SUMMARY

The importance to agree bank column of the cash book with the bank statement balance and the reasons for differences between the cash book and bank statement balances were considered in this unit. Adjusted cash book and bank reconciliation statement were also prepared.

6.0	TUTOR-MARKED ASSIGNMENT

Question 1: Below is an extract of the Bank Statement of Messrs. Jackson & Co for April, 1987.

Date	Details	Dr.	Cr.		Balance
1/4/87	Balance	N	N	N	176,000Cr
					
4/4/87	Dasco Engineering		40,000		216,000Cr
5/4/87	Adebayo Builders		60,000		276,000Cr
7/4/87	Bisi Motors Cheque 011201	32,000			244,000Cr
9/4/87	Jide Foods Cheque 011202	57,000			187,000Cr
13/4/87	OkinOloja& Co. Cheque 011204	32,800			154,200Cr
14/4/87	Bank Charges	7,280			146,920Cr
15/4/87	Interest on Fixed Deposit		4,000		150,920Cr
16/4/87	ToluAdeolu& Co. Cheque 011205	8,000			142,920Cr
30/4/87	Kingsway Stores Cheque 011206	19,200			123,720Cr

You are given the following additional information:

(a)	Cheque No 011203 issued in favour of TayoAjao and Associates for N24,800 was presented to the Bank on 2nd May, 1987.

(b)	Advice in respect of Bank charges was received by Messrs. Jackson & Co. on 6th May, 1987.

(c)	Cheque issued in favour of Jide Foods is for supplies to the Directors.


You are required to prepare:

i.	The Cash Book of Messrs. Jackson & Co. for April, 1987 and

ii.	A Bank Reconciliation Statement as at 30th April, 1987.

Question 2: On 30th June 2016, Olisa’s cash book showed that he had an overdraft of N12,000 on his current account at the bank. On checking the cash book with the bank statement you find the following.



170
 

(a)	Cheque drawn amounting to N20,000 had been entered in the cash book but had not been presented.

(b)	Cheques received amounting to N16,000 had been entered in the cash book but had not been credited to the bank.

(c)	On instructions from Olisa, the bank had transferred interest of N2,400 from his deposit account to his current account, recording the transfer on 5th July 2016. This amount had however, been credited in the cash book as on 30th June 2016.

(d)	Bank charges of N1,400, shown in the bank statement had not been entered in the cash book.

(e)	The payment side of the cash book had been under cast by N400;

(f)	Dividends amounting to N8,000 had been paid direct to the bank, and not entered in the cash book.

(g)	A cheque of N2,000, drawn on deposit account had been shown in the cash book as drawn on current account.

(h)	A cheque issued to Jolayemi for N1,000 was replaced when out of date.  It


was entered again in the cash book, no other entry being made. Both cheques were included in the total of unpresented cheque shown above.

You are required to indicate the appropriate adjustment in the cash book, and prepare a statement reconciling the amended balance with that shown in the bank statement.

7.0	REFERENCES/FURTHER READINGS

Accounting Technicians Scheme West Africa (2009).Basic Accounting Processes and System Part 1, Study Pack. Lagos: Abina Publishers

Garbutt, D. (1984), Carter’s Advanced Accounts “7th Edition”. London: Pitman Publishing Limited

Jat, R.B. and Jugu, G.Y. (2008).Modern Financial Accounting: Theory and Practice. Jos:

Ehindero (Nig.) Limited

Oluyombo, Onafowokan (2016) Financial Accounting With Ease (3rd Edition). Magboro:

Kings & Queen Associates

Soyode, A. (1980), Financial Accounting: Principles and Practice. Uk: Graham Burn. The Institute of Chartered Accountants of Nigeria, (2006).Fundamentals of Financial Accounting.Foundation Study Pack. Lagos: Vikas Publishing Limited


















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The three branches of accounting are, auditing, management accounting and
Question 1Answer

Financial


A trial balance is a proof of accuracy of
Question 2Answer

double entry in the ledgers


In preparing trading profit and loss account, insurance payment is a charge to..
Question 3Answer

profit and loss account


One of the users of accounting information that will want to know about profit earned, dividends to be paid and net worth of the business is called
Question 4Answer

Shareholders


Trading account is prepared in order to determine
Question 5Answer

Gross profit


The concept which states that the value of assets should be stated or recorded at cost price or the original cost is called
Question 6Answer

Cost concept


Prepayment is a charge to what class of assets
Question 7Answer

current assets


The goods bought and later returned by the buyer to the seller is called
Question 8Answer

Return outward


Who is responsible for reporting on the true and fair view of an organizations financial statement
Question 9Answer

Auditor


Another name for sales journal is
Question 10Answer

Sales day book

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