The most important reason for studying accounting is that
Accounting provides critical financial information that helps individuals and businesses make informed decisions, making it the most fundamental reason for studying accounting.
In preparing accounting records, the owners of a business and the business are treated as
The business entity concept in accounting treats the business as a separate legal entity from its owners, ensuring that personal and business finances are not mixed.
Creditors use accounting information for the purpose of
Creditors are primarily concerned with a company’s ability to repay debts, so they use accounting information to assess liquidity, which measures the ability to meet short-term obligations.
The instruments that are generated when firms enter into business transactions with others are called
Source documents are the original records of business transactions, such as invoices or receipts, generated when firms transact with others.
The document that is used to acknowledge the acceptance of the return of goods by the seller from the buyer is known as
A credit note is issued by the seller to the buyer to acknowledge the return of goods, often reducing the amount the buyer owes.
The effect of the payment of a liability is that it
Paying a liability reduces the business’s obligations (liabilities) and also reduces its assets (e.g., cash), hence decreasing both.
Books of original entry are used for
Books of original entry, such as journals, are used to record business transactions in the first instance before they are posted to the ledger.
The term posting in accounting refers to
Posting refers to the process of transferring entries from the journal (where transactions are initially recorded) to the ledger accounts.
Erroneous rearrangement of financial figures such as writing N624 as N264 is called
Transposition error occurs when digits are rearranged incorrectly, such as writing N624 as N264.
Which of the following demonstrates the imprest system?
The imprest system involves starting with a float, paying expenses, then reimbursing the float with cash from the bank to restore the original amount.
When a sum of money appears on the credit side of the cash book, but not on the bank statement, the sum is regarded as
Unpresented cheques are amounts recorded in the cash book as paid but not yet presented to the bank, so they don’t appear on the bank statement.
An examination of the cash book on 3rd August 1993 shows that while the bank statement shows a debit balance of N4,500, the cash book balance was N1,500 credit. The difference is due to bank charges of N150 and unpresented cheques were N6,150. What was the adjusted cash book balance on 3rd August 1993?
Adjust the cash book balance: N1,500 credit - N150 bank charges = N1,650 credit. Unpresented cheques affect the bank statement, not the cash book.
On 30/05/93, Tolu & Co. paid 2 years rent of N50,000, debited to the rent account. What amount was prepaid as at 31/12/93?
Annual rent = N50,000 / 2 = N25,000. From 30/05/93 to 31/12/93 is 7 months, so rent used = (7/12) × N25,000 = N14,583. Prepaid = N50,000 - N14,583 = N35,417.
The receipt of cash from a customer who bought goods of N5,000 with a discount of N250, amount to N4,750 if paid within 30 days would be?
The customer receives a N250 discount, so the amount paid is N5,000 - N250 = N4,750, as stated.
The recording of wages due but not yet paid is an example of an adjustment for
Wages due but not paid are accrued expenses, as they represent a liability for the business that has been incurred but not yet settled.
On 1st January 1993, Lobo purchased equipment for N15,000, using straight-line depreciation with an eight-year useful life. It sells the equipment for N8,000 on 1st January 1996. What is the net gain or loss?
Annual depreciation = N15,000 / 8 = N1,875. After 3 years, depreciation = 3 × N1,875 = N5,625. Book value = N15,000 - N5,625 = N9,375. Sold for N8,000, so loss = N9,375 - N8,000 = N1,375.
Raw materials inventory at the beginning of a period was N46,900, purchases during the period were N50,000, and at the close of the period, inventory was N49,300. What is the cost of raw materials used during the period?
Cost of raw materials used = Opening inventory + Purchases - Closing inventory = N46,900 + N50,000 - N49,300 = N47,600.
Materials consumed during the period was N48,500. What was the total purchases made during the period?
Materials consumed are the total purchases used during the period, which is given as N48,500.
The balance on a purchase ledger control account represents the
The purchase ledger control account shows the total amount owed to suppliers for goods purchased on credit.
The statement of affairs is prepared from incomplete records because it shows
The statement of affairs is essentially a balance sheet prepared from incomplete records, showing assets, liabilities, and capital at a specific date.
The contribution margin on a job is the
Contribution margin is the difference between sales revenue and variable costs, used to cover fixed costs and contribute to profit.
The objective of allocating a cost to product is to
Allocating costs to products helps determine the total production cost, which is essential for pricing and profitability analysis.
The limitations of the receipts and payments account arise mainly because of the reliance on
The receipts and payments account only records cash transactions, ignoring accruals or non-cash items, which limits its usefulness.
The trading account is to a sole trader what income and expenditure account is to a
A non-profit-making organization prepares an income and expenditure account, which is similar to a trading account for a sole trader but adjusted for non-profit activities.
Which of the following indicates that a partnership business is in place? (i) there is a business (ii) it is run commonly by partners (iii) it has profit-making aim (iv) partners’ liability is limited
A partnership involves a business (i) run commonly by partners (ii) with a profit-making aim (iii). Limited liability (iv) does not apply to most partnerships.
When forming a partnership new partners record non-monetary assets on the new partnership’s books at
Non-monetary assets are recorded at their current fair market value when brought into a new partnership to reflect their true worth.
Umar and Ahmed share profits and losses equally and have capital balances of N40,000 and N60,000 respectively. If Abdullah purchases a one-third interest with no bonus, how much will he have to contribute to the partnership?
Total capital = N40,000 + N60,000 = N100,000. Abdullah’s one-third share = N100,000 / 3 = N33,333, which he contributes with no bonus.
Which of the following entries is effected by a department when goods are charged to it at selling prices?
When goods are charged at selling prices, the purchases account is debited to reflect the cost to the department.
The difference between the closure of the books of a branch and those of a separate company is that there is retained earnings account on
A branch does not have a retained earnings account as it is not a separate legal entity; its earnings are part of the main company.
The term fiscal compliance means
Fiscal compliance refers to adhering to all financial laws and regulations, ensuring legal and ethical financial practices.
In a public corporation, the capital expenditure incurred in a financial period is
Capital expenditure is spread over the useful life of assets through depreciation, not written off immediately.
Money not required to meet chargeable expenditure in any fiscal year under cash accounting should be
In public sector accounting, unspent funds are typically surrendered to the consolidated revenue fund for reallocation.
The end result of governmental accounting procedure is to
Governmental accounting aims to provide timely and accurate financial reports for transparency and accountability to legislators and the public.
On 1st January 1993, a company purchased a machine for N17,500. What is the initial accounting cost of the machine?
The initial accounting cost of the machine is the purchase price, N17,500.
A pottery company had sales of N176,000 during the current period and a gross profit rate of 40%. The company’s cost of merchandise available for sale was N128,000. What is the company’s ending inventory?
Gross profit = 40% of N176,000 = N70,400. Cost of sales = N176,000 - N70,400 = N105,600. Ending inventory = Cost of merchandise available (N128,000) - Cost of sales (N105,600) = N22,400.
If goods are invoiced to the branch at cost and the invoice value is N2,000 with 5% discount rate, cash remitted to the head office is
Invoice value = N2,000. 5% discount = 5% of N2,000 = N100. Cash remitted = N2,000 - N100 = N1,900.
Which of the following are advantages of departmental accounts? (i) The department making the highest profit can be easily determined (ii) The capital of the business can be calculated easily (iii) Easy knowledge of the sources of funding (iv) Encouragement of healthy rivalry among the various departments
Departmental accounts help identify the most profitable department (i) and encourage rivalry (iv), but they don’t directly assist in calculating capital or funding sources.
Public sector accounting is based on
Public sector accounting is traditionally based on cash accounting, recording transactions when cash changes hands.
The purpose of a trial balance is to
The trial balance is prepared to verify the arithmetic accuracy of ledger accounts by ensuring that total debits equal total credits.
A petty cash book is used to
A petty cash book records small, routine cash expenses, such as office supplies or travel costs, managed under the imprest system.
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