55 questions. Try each one, then open the answer to check yourself and read the explanation.
Which of the following describes a trial balance?
Answer: B (It is a list of balances in the books)
A trial balance simply lists the debit and credit balances taken from the ledger to check arithmetic accuracy.
Which of the following is not a feature of accounting information?
Answer: A (Affordability.)
Good accounting information should be timely, accurate and complete; 'affordability' is not one of its qualities.
Which of the following is the equation for determining net profit or loss from the records of a firm?
Answer: D (Closing Capital + Drawings - Opening Capital.)
Profit is the increase in capital: closing capital plus what the owner took out (drawings) minus opening capital.
Purchase invoice is first entered in the
Answer: D (Purchases Journal.)
Invoices for credit purchases are first recorded in the purchases journal (day book) before posting to the ledger.
Goods returned to a supplier is
Answer: B (credited to Returns Outwards Account.)
Goods sent back to a supplier are returns outwards; that account is credited (the supplier is debited).
Which of the following is a real account?
Answer: A (Plant account.)
Real accounts record property (assets) such as plant; salaries is nominal and creditors is personal.
The accounting ledger for goods sold on credit are debit
Answer: A (Debtors Account, credit Sales Account.)
A credit sale makes the customer a debtor (debit) and increases sales (credit).
Which of the following is not a book of original entry?
Answer: B (Purchases account.)
The purchases account is a ledger account, not a book of original entry.
What is the ledger entry for the sale of plant and machinery on credit to Wilson?
Answer: B (Credit Plant and Machinery Account and debit Wilson's Account.)
Selling a fixed asset reduces the asset account (credit); Wilson owes the money, so his account is debited.
Discount Received Account is a
Answer: C (nominal account.)
Discount received is a gain (income), and income and expense accounts are nominal accounts.
Which of the following accounts has a credit balance?
Answer: A (Capital.)
Capital is owed by the business to the owner, so it has a credit balance; cash, drawings and premises are debits.
The accounting entry to correct sales day book overcast is
Answer: D (Debit Sales Account and Credit Suspense Account.)
An overcast day book total overstates the sales credit only, so debit sales to reduce it and credit suspense.
Which of the following expresses the accounting equation?
Answer: B (Assets - liabilities = capital.)
What the business owns less what it owes to outsiders belongs to the owner: assets - liabilities = capital.
When the invoice of a customer is overcast, the supplier will send to him a
Answer: D (credit note.)
An overcharge is reduced by a credit note, which lowers the amount the customer owes.
Unpresented cheques are cheques
Answer: A (that have been recorded in the cash book, but not by the bank.)
Cheques issued and entered in the cash book but not yet presented to the bank are unpresented cheques.
Extracts from the books of a firm as at June 30, 2012 showed the following balances: Advertising Dr GH¢36,000; Electricity Dr GH¢60,000. Advertising was paid by cheque covering 12 monthly instalments ending March 31, 2012. Electricity was paid by cash covering 15 monthly instalments from March 1, 2011.
Advertising owing in respect of the year ended June 30, 2012 is
Answer: B (GH¢ 9,000.)
Each instalment is GH¢36,000 ÷ 12 = GH¢3,000. Payments stop at March 2012, so April, May and June 2012 are owing: 3 × 3,000 = GH¢9,000.
Extracts from the books of a firm as at June 30, 2012 showed the following balances: Advertising Dr GH¢36,000; Electricity Dr GH¢60,000. Advertising was paid by cheque covering 12 monthly instalments ending March 31, 2012. Electricity was paid by cash covering 15 monthly instalments from March 1, 2011.
What was the amount charged to the profit and loss account in respect of advertising for the ended June 30, 2012?
Answer: A (GH¢ 36,000.)
A full year of advertising is charged: 12 months × GH¢3,000 = GH¢36,000 (amount relating to the year plus the amount owing).
Extracts from the books of a firm as at June 30, 2012 showed the following balances: Advertising Dr GH¢36,000; Electricity Dr GH¢60,000. Advertising was paid by cheque covering 12 monthly instalments ending March 31, 2012. Electricity was paid by cash covering 15 monthly instalments from March 1, 2011.
Electricity in arrears as at June 30, 2012 amounted to
Answer: D (GH¢ 4,000.)
Each instalment is 60,000 ÷ 15 = GH¢4,000; 15 months from March 2011 cover up to May 2012, so only June 2012 (GH¢4,000) is in arrears.
The cost of putting goods into a saleable condition is charged to
Answer: D (trading account.)
Costs of getting goods ready for sale (e.g. carriage inwards, packing to make saleable) are part of cost of sales in the trading account.
Which of the following is not a method of depreciating fixed assets?
Answer: D (Obsolescence.)
Obsolescence is a cause of depreciation, not a method of calculating it.
In preparing a profit and loss account, a decrease in provision for doubtful debts accounts is treated as
Answer: C (income.)
Reducing the provision releases part of an earlier charge, so it is credited to profit and loss as a gain (income).
Which of the following items is found in the sales ledger control account?
Answer: C (Discount allowed.)
Discount allowed to customers reduces debtors, so it is credited in the sales ledger control account.
The process of using sales ledger balance to cancel off purchases ledger balance is
Answer: B (set off.)
Offsetting what a customer owes us against what we owe him (as a supplier) is called a set-off or contra.
The total of the returns outwards journal is posted to the
Answer: D (credit side of the returns outwards account.)
Individual suppliers are debited; the total of the returns outwards journal is credited to the returns outwards account.
Which of the following is not revealed by a firm's accounting records?
Answer: B (Quality of labour force.)
Accounts record money values; the quality of workers is not measured in money, so the records do not show it.
Use the following information: (1/7/10 / 30/6/11) Stock D1,460 / D4,200; Motor van D3,600 / D3,200; Creditors D600 / D700. Drawings during the year amounted to D1,500.
Opening capital is
Answer: C (D4,460.)
Opening capital = stock 1,460 + motor van 3,600 - creditors 600 = D4,460.
Use the following information: (1/7/10 / 30/6/11) Stock D1,460 / D4,200; Motor van D3,600 / D3,200; Creditors D600 / D700. Drawings during the year amounted to D1,500.
Closing capital is
Answer: C (D6,700.)
Closing capital = stock 4,200 + motor van 3,200 - creditors 700 = D6,700.
Use the following information: (1/7/10 / 30/6/11) Stock D1,460 / D4,200; Motor van D3,600 / D3,200; Creditors D600 / D700. Drawings during the year amounted to D1,500.
Net profit for the year is
Answer: B (D3,740.)
Net profit = closing capital 6,700 + drawings 1,500 - opening capital 4,460 = D3,740.
In the balance sheet of a social club, subscription owing is treated as a
Answer: B (current asset.)
Subscriptions in arrears are money members owe the club, so they are a current asset.
The accounting concept that allows the cost of kitchen cutlery to be expensed, though it will be used for more than one year is
Answer: A (materiality.)
Small-value items are written off at once because treating them as fixed assets would not matter to users: the materiality concept.
The accounting concept that assumes that a business will continue operating for an indefinite period is
Answer: B (going concern.)
Going concern assumes the business will carry on for the foreseeable future.
The accounting concept that states that a firm's financial affairs must be separated from that of the owner's private transactions is
Answer: A (business entity.)
The business entity concept treats the business as separate from its owner.
In which of the following accounts is interest on partners capital found?
Answer: D (Profit and Loss appropriation.)
Interest on capital is a sharing of profit, so it is debited in the profit and loss appropriation account.
In which of the following is not stated in the partnership agreement?
Answer: C (Interest on fixed asset.)
A partnership deed covers the profit sharing ratio, interest on capital and the purpose of the firm; 'interest on fixed asset' is not a partnership term.
Mr. White acquired Mr. Black's business for GH¢410,000. The total assets were GH¢670,000 and liabilities amounted to GH¢320,000.
How much was paid for goodwill?
Answer: D (GH¢ 60,000.)
Net assets = 670,000 - 320,000 = GH¢350,000; goodwill = 410,000 - 350,000 = GH¢60,000.
Mr. White acquired Mr. Black's business for GH¢410,000. The total assets were GH¢670,000 and liabilities amounted to GH¢320,000.
The double entry to record the goodwill in the books is debit
Answer: B (Goodwill Account and credit Purchase of Business Account.)
Goodwill is an asset taken over, so it is debited, with the purchase of business account credited.
The document which sets out the internal arrangement for the proper management of a company is the
Answer: B (article of association.)
The articles of association are the internal rules of a company; the memorandum governs its dealings with outsiders.
A person who has applied to purchase shares in a company is referred to as
Answer: B (a subscriber.)
An applicant for shares is a subscriber; he becomes an allottee only when shares are allotted to him.
Which of the following expenses is allocated according to the floor area?
Answer: B (Rent and rates.)
Rent and rates relate to space, so they are shared between departments by floor area.
Goods stolen at the branch is debited to
Answer: A (Defalcations Account.)
Stolen branch goods are credited to branch stock and debited to a defalcations (goods lost) account, later written off to profit and loss.
Which of the following is a source of revenue for a local government?
Answer: D (Market tolls.)
Market tolls are collected by local councils; the other sources belong to state or federal government.
The instrument used to release fund which the minister of finance had earlier withheld is
Answer: A (reserve expenditure warrant.)
Money held back in reserve is released with a reserve expenditure warrant.
Which of the following relates to cash basis of accounting?
Answer: C (Fixed assets are written off in the year of purchase.)
Under the cash basis only cash paid and received is recorded, so the full cost of a fixed asset is treated as spending in the year it is bought.
Which of the following is found on the credit side of a partnership's appropriation of profit account?
Answer: B (Interest on drawings.)
Interest charged on partners' drawings adds to the profit available, so it is credited in the appropriation account.
Which of the following is a spreadsheet application?
Answer: A (Excel.)
Microsoft Excel is a spreadsheet program; Word is a word processor and Windows an operating system.
The quality of output information depends on the
Answer: A (quality of input data.)
Output can only be as good as the data put in ('garbage in, garbage out').
(a) Describe the following: (i) bank statement; (ii) bank reconciliation statement.
(b) Explain five causes of disagreement between the cash book and the bank statement balances.
(a)(i) Bank statement: a copy of the customer's account prepared by the bank, showing dates, details, debits (withdrawals), credits (lodgements) and the running balance.
(ii) Bank reconciliation statement: a statement prepared by the customer at a date to explain the difference between the cash book bank balance and the bank statement balance, item by item.
(b) Any five: unpresented cheques (issued and entered in the cash book but not yet paid by the bank); uncredited lodgements (paid in but not yet credited by the bank); standing orders and direct debits paid by the bank but not in the cash book; bank charges and commission not yet entered in the cash book; credit transfers/dividends received directly by the bank; dishonoured cheques; errors in the cash book; errors by the bank.
Think of items one side knows about and the other does not yet.
(a) What is a suspense account?
(b) Explain five errors that would not affect the agreement of the Trial balance.
(c) Mention a class of account that would always show: (i) debit balance; (ii) credit balance.
(a) A temporary account opened to hold the difference when a trial balance does not agree (or to hold items not yet classified), until the errors are found and corrected.
(b) Any five: error of omission (transaction left out completely); error of commission (right amount, wrong personal account of the same class); error of principle (entered in the wrong class of account, e.g. asset as expense); error of original entry (wrong amount used for both debit and credit); complete reversal of entries (right accounts, wrong sides); compensating errors (errors that cancel each other); transposition made in both entries.
(c)(i) Debit balance: assets or expenses (e.g. drawings).
(ii) Credit balance: liabilities, capital or income.
Errors that keep debits equal to credits do not upset the trial balance.
(a) State two ratios which fall under the following classification of accounting ratios: (i) profitability; (ii) Activity; (iii) Liquidity; (iv) Investment; (v) leverage.
(b) Outline: (i) three uses of accounting ratios; (ii) two limitations in the use of accounting ratios.
(a)(i) Profitability: gross profit margin; net profit margin; return on capital employed.
(ii) Activity: rate of stock turnover; debtors' collection period; creditors' payment period; asset turnover.
(iii) Liquidity: current ratio; acid test (quick) ratio.
(iv) Investment: earnings per share; dividend per share; dividend yield; price/earnings ratio; dividend cover.
(v) Leverage: gearing ratio; debt-to-equity ratio; interest cover.
(b)(i) Any three: measure profitability and performance; judge liquidity and ability to pay debts; compare with past years or other firms; judge credit-worthiness; help forecasting and planning; assess management efficiency; guide investors.
(ii) Any two: firms use different accounting policies so comparisons mislead; ratios ignore non-money (qualitative) factors; inflation distorts comparisons over time; figures may be window-dressed; based on past data; terms are defined differently by different firms.
Give the ratio names, not formulas, unless asked.
(a) What is a Manufacturing account?
(b) Explain the following terms: (i) prime cost; (ii) factory overheads; (iii) work-in-progress; (iv) cost of goods transferred; (v) finished goods; (vi) profit on manufacturing.
(a) An account prepared by a firm that makes goods, to find the cost of production of the finished goods made in the period.
(b)(i) Prime cost: total of direct costs - direct materials, direct labour and direct expenses (e.g. royalties).
(ii) Factory overheads: indirect factory costs that cannot be traced to a unit of output, e.g. factory rent, supervisors' wages, factory power, depreciation of machinery.
(iii) Work-in-progress: goods partly made at the end (or start) of the period.
(iv) Cost of goods transferred: the value at which finished goods are passed from the manufacturing account to the trading account (cost of production, or a transfer price).
(v) Finished goods: products that have completed production and are ready for sale.
(vi) Profit on manufacturing: the excess of the transfer (market) value of goods produced over their cost of production.
Prime cost + factory overheads ± work-in-progress = cost of production.
The following balances have been extracted from the books of Johnson Ltd. (₦)
January 2014: Sales ledger balances 96,000
January 2014: Purchases ledger balance 160,000
Purchases journal 1,600,000
Sales journal 4,000,000
Cash and cheques from customers 2,320,000
Cheques paid to suppliers 1,200,000
Return outwards journal 24,000
Returns inwards Journal 40,000
Discount allowed 44,000
Discount received 1,680
Bad debts written off 1,200
Customers cheques dishourned 480
Balance of sales ledger set off against balance in the purchases ledger 8,000
Petty cash to suppliers 16,000
Bills receivable 1,280
Bills payable 2,520
Discount allowed now disallowed 240
Service charges added to unpaid accounts 832
Credit notes issued to customers 39,440
Balances at 31st December 2014: Purchases ledger 24,000Dr; Sales ledger 400,000Cr
You are required to prepare: (a) Total Debtors Account; (b) Total Creditors Account.
(a) Total Debtors Account (₦): Dr - balance b/f 96,000; sales 4,000,000; cheques dishonoured 480; discount disallowed 240; service charges 832; balance c/d (credit balances) 400,000 = 4,497,552.
Cr - cash and cheques 2,320,000; returns inwards 40,000; discount allowed 44,000; bad debts 1,200; set-off 8,000; bills receivable 1,280; credit notes 39,440; balance c/d 2,043,632 = 4,497,552.
Debit balance b/d 2,043,632; credit balance b/d 400,000.
(b) Total Creditors Account (₦): Dr - petty cash 16,000; cheques 1,200,000; returns outwards 24,000; discount received 1,680; set-off 8,000; bills payable 2,520; balance c/d 531,800 = 1,784,000.
Cr - balance b/f 160,000; purchases 1,600,000; balance c/d (debit balances) 24,000 = 1,784,000.
Credit balance b/d 531,800; debit balance b/d 24,000.
The printed list puts each amount one line above its label; take the amounts in order.
Babou Social Club was formed on April 1, 2013 with 50 members, each paying an annual subscription of D12. The following information were extracted from the books of the club on 31st March, 2014: (i) Amount realized during inauguration - D3,000; expenses on inauguration D1,000. (ii) All members paid their subscription with the exception of five members who were still owing by 31st March, 2014. (iii) Gate fees from organized football match were D500 and expenses incurred D300. (iv) Proceeds from end of the year dance amounted to D4,000 and expenses on dance D2,000. (v) Honorarium to officers amounted to D520 and sundry expenses D1,120. (vi) Amount paid for damages to furniture during dance D300.
You are required to prepare for the year ended 31st March, 2014: (a) Receipts and Payments Account. (b) Income and Expenditure Account.
(a) Receipts and Payments Account (D): Receipts - inauguration 3,000; subscriptions (45 × 12) 540; football match 500; dance 4,000 = 8,040.
Payments - inauguration expenses 1,000; football expenses 300; dance expenses 2,000; damages 300; honorarium 520; sundry expenses 1,120 = 5,240. Balance c/d 2,800.
(b) Income and Expenditure Account (D): Income - subscriptions (540 + 60 owing) 600; inauguration surplus (3,000 - 1,000) 2,000; football surplus (500 - 300) 200; dance surplus (4,000 - 2,000) 2,000 = 4,800.
Expenditure - honorarium 520; sundry expenses 1,120; damages 300 = 1,940.
Excess of income over expenditure 2,860.
Subscriptions owing (5 × D12 = D60) go in the income and expenditure account, not the receipts and payments account.
Odum Ltd keeps his books on single entry basis and the following information relates to his business for the year 2014.
Assets and Liabilities (1st January 2014 / 31st December 2014, GH¢): Investment - / 1,000; Bills payable - / 300; Creditors 1,750 / 1,900; Debtors 2,100 / 3,400; Cash 150 / 200; Stock 1,000 / 1,250; Motor car 2,000 / 2,000; Loan from Nyadu - / 500
In addition, Odum withdrew an amount of GH¢500 and introduced GH¢200 additional capital.
(a) You are required to ascertain: (i) opening capital (ii) closing capital (iii) net profit.
(b) Prepare the Balance Sheet as at 31st December, 2014.
(a)(i) Opening capital (statement of affairs, 1/1/14): motor car 2,000 + stock 1,000 + debtors 2,100 + cash 150 = 5,250 - creditors 1,750 = GH¢3,500.
(ii) Closing capital (31/12/14): motor car 2,000 + investment 1,000 + stock 1,250 + debtors 3,400 + cash 200 = 7,850 - (creditors 1,900 + bills payable 300 + loan 500) 2,700 = GH¢5,150.
(iii) Net profit = closing capital 5,150 + drawings 500 - additional capital 200 - opening capital 3,500 = GH¢1,950.
(b) Balance Sheet at 31 December 2014: Fixed assets - motor car 2,000; investment 1,000 = 3,000. Current assets - stock 1,250; debtors 3,400; cash 200 = 4,850. Total assets 7,850.
Capital 3,500 + additional capital 200 + net profit 1,950 - drawings 500 = 5,150; loan from Nyadu 500; current liabilities - creditors 1,900, bills payable 300 = 2,200. Total 7,850.
Profit = closing capital + drawings - capital introduced - opening capital.
Weah Co. Ltd. has an authorized capital of $120,000 divided into 100,000 ordinary shares and 20,000 5% preference shares.
($) Issued and fully paid capital: Ordinary share capital 80,000; 5% Preference share capital 20,000
Land and building at cost 68,000
Motor vehicles at cost 30,000
Fixtures and fittings at cost 6,000
Stock 7,000
Debtors 6,300
Bank 2,000
Cash 70
Creditors 900
Call in arrears 2,000
Provision for doubtful debts 300
Profit for the year ended 31st December, 2014 13,570
Additional information: (i) Provide for depreciation on motor vehicles at 20% and furniture and fittings at 10% per annum. (ii) The directors decided to: - transfer $3,000 to reserve; - recommend a dividend of 10% on ordinary shares and pay preference shares dividend.
You are required to prepare: (a) Appropriation Account/Income Surplus Account for the year ended 31st December, 2014; (b) Balance Sheet as at that date.
(a) Appropriation Account ($): net profit 13,570; less transfer to reserve 3,000; proposed preference dividend (5% × 20,000) 1,000; proposed ordinary dividend (10% × 80,000) 8,000; retained profit 1,570.
(b) Balance Sheet at 31 December 2014 ($): Fixed assets (cost / depreciation / NBV) - land and buildings 68,000 / - / 68,000; motor vehicles 30,000 / 6,000 / 24,000; fixtures and fittings 6,000 / 600 / 5,400; total 97,400.
Current assets - stock 7,000; debtors 6,300 less provision 300 = 6,000; calls in arrears 2,000; bank 2,000; cash 70 = 17,070. Total 114,470.
Authorised capital: 100,000 ordinary shares 100,000; 20,000 5% preference shares 20,000 = 120,000 (note only).
Issued capital: ordinary 80,000; preference 20,000 = 100,000; reserve 3,000; retained profit 1,570 = 104,570. Current liabilities - creditors 900; proposed dividends 8,000 + 1,000 = 9,900. Total 114,470.
The figures balance only if the profit of $13,570 is after depreciation, so the depreciation is shown in the balance sheet only.
The following balances were extracted from the books of Bonjuri, a retailer as at 31st March, 2014. (Dr / Cr, Le)
Capital / 100,000
Drawings 50,000
Cash in hand 1,000
Cash at bank 18,500
Debtors and creditors 70,000 / 4,000
Insurance 2,500
Purchases and sales 535,000 / 700,000
Stock: 1st April, 2013 50,000
Electricity 2,000
General expenses 13,000
Equipment at cost 15,000
Provision for depreciation of Equipment - 1st April, 2013 / 3,000
Wages and salaries 30,000
Rent 20,000
Totals 807,000 / 807,000
Additional information: (i) Stock on 31st March, 2014 was valued at Le 60,000; (ii) At 31st March, 2014: Le 1,500 was outstanding on insurance; electricity was prepaid by Le 500 and there was a doubtful debt of Le 1,000; (iii) Depreciation is to be provided on equipment at 10% on cost.
You are required to prepare: (a) Trading, Profit and Loss Account for the year ended 31st March, 2014; (b) Balance Sheet as at that date.
(a) Trading (Le): sales 700,000; cost of sales = opening stock 50,000 + purchases 535,000 - closing stock 60,000 = 525,000; gross profit 175,000.
Profit and loss: insurance (2,500 + 1,500) 4,000; electricity (2,000 - 500) 1,500; provision for doubtful debts 1,000; wages and salaries 30,000; rent 20,000; general expenses 13,000; depreciation (10% × 15,000) 1,500 = 71,000. Net profit 104,000.
(b) Balance Sheet at 31 March 2014 (Le): Equipment 15,000 - depreciation (3,000 + 1,500) 4,500 = 10,500.
Current assets - stock 60,000; debtors 70,000 - 1,000 = 69,000; electricity prepaid 500; cash at bank 18,500; cash in hand 1,000 = 149,000.
Current liabilities - creditors 4,000; insurance owing 1,500 = 5,500. Working capital 143,500. Net assets 154,000.
Financed by: capital 100,000 + net profit 104,000 - drawings 50,000 = 154,000.
Adjust each expense for amounts owing or prepaid before charging it.