WAEC Accounting 2018
Questions & Answers

A student might pick Profitability or Efficiency because they are standard business metrics, but they relate to performance outcomes rather than the intrinsic qualitative attributes of financial reporting. According to the IFRS Conceptual Framework, relevance and faithful representation are the fundamental qualitative characteristics that make financial information useful for decision-making. Common mistake: Selecting operational performance measures instead of reporting quality criteria.

A student might select provision for doubtful debts or discounts, but those are credit items in trial balances; fuel for a vehicle is an ordinary expense debit, whereas the engine is capitalized. Purchase of a new engine is debited to the asset account, resulting in a debit side entry in the trial balance because it enhances the asset's value. Common mistake: Treating major asset upgrades as routine operational expenses.

Options such as purchase of fuel or maintenance of machinery might look like business expenses, but they are routine operational costs rather than capital additions. Purchase of a plant is a capital expenditure because it increases the value of fixed assets and is capitalized, whereas fuel and maintenance are revenue expenditures expensed immediately. Common mistake: Failing to distinguish between long-term asset investments and short-term operational expenses.

A student could mistakenly choose the Sales Journal or Purchase Journal, but those record primary sales or purchases rather than returned items. Credit notes received from suppliers for returns outwards are recorded in the returns outwards journal, which serves to reduce the total purchases. Common mistake: Recording supplier return documents in the primary purchase ledger instead of the returns journal.

Options like Credit Note or Invoice might be selected because they are common trade documents, but invoices request payment and credit notes handle seller reductions. A debit note is sent to suppliers to claim a reduction for faulty goods, requesting a credit adjustment for the unsatisfactory items. Common mistake: Confusing the document sent to claim allowances with the one issued by the supplier.

A student might select Capital or Drawings, but those represent the owner's stake or withdrawals rather than external claims against the business. The claims of a creditor against a business are liabilities, representing the amounts owed by the entity for goods or services received on credit. Common mistake: Mixing up internal owner equity with external creditor obligations.

Terms like Capital or Drawings might be incorrectly chosen since they appear in the ledger structure, but they track owner investments or withdrawals rather than asset usage. Depreciation systematically allocates the cost of a fixed asset over its useful life, treating it as an expense in the profit and loss account. Common mistake: Treating asset value reduction as an owner withdrawal rather than an operating expense.

A student might choose the Receivable ledger or General ledger, but receivables track customers and general ledgers house summary accounts rather than supplier specifics. Entries logged in the purchases journal are transferred specifically to the individual supplier accounts housed within the payables ledger. Common mistake: Posting purchase journal entries to customer accounts instead of supplier accounts.

Options like Trade discount or Quantity discount might seem correct because they involve price reductions, but they are granted for trade status or bulk purchases rather than timing. Cash discount is offered specifically to customers for early payment within a specified period, helping improve business cash flow. Common mistake: Confusing bulk price reductions with early payment incentives.

A student might accidentally apply the cash discount or compute the wrong trade deduction, arriving at incorrect figures like GH¢60,028 or GH¢88,920. The gross amount of 1560 units at GH¢60 each equals GH¢93,600, and subtracting the 10% trade discount yields a net payable of GH¢84,240, since no cash discount applies on the 40th day. Common mistake: Applying an early payment cash discount to a transaction paid past the discount window.

A learner might pick GH¢9,360 by mistakenly calculating the cash discount from the gross total instead of the post-trade-discount balance. After applying the 10% trade discount to the gross amount of GH¢93,600, the net is GH¢84,240, and taking 10% of that adjusted figure yields the cash discount of GH¢8,424 allowed for payment within 30 days. Common mistake: Calculating cash discounts on the gross invoice amount instead of the net trade value.

An error of original entry or principle might be chosen by a student guessing bookkeeping mistakes, but original entry involves misrecording the source document amount, not posting to a wrong name. An error of commission occurs when the correct amount is posted to the wrong account, such as crediting one customer's account instead of another customer named Kofi. Common mistake: Confusing wrong-account postings with incorrect initial transaction amounts.

Options like Capital employed or Fixed capital might be selected because they relate to business finance, but they incorporate long-term debt or non-current assets rather than net short-term liquidity. Working capital measures short-term liquidity as current assets minus current liabilities, indicating the business's ability to meet its short-term obligations. Common mistake: Confusing short-term liquidity formulas with overall capital investment metrics.

Students might mistakenly choose options involving goods returns or total supplies because they confuse normal credit balances with debit balances in control accounts. A debit balance in creditors control indicates payments or returns exceed purchases, meaning overpayment to creditors by GH¢420. Common mistake: Assuming any control account balance always aligns with normal ledger rules instead of recognizing that a debit signifies a surplus payment.

A student might incorrectly pick option A or D, mixing up operational sub-ledgers with general ledger classifications like owner equity or liabilities. Sales ledger tracks individual debtors (customers), purchases ledger tracks individual creditors (suppliers) for detailed subsidiary records. Common mistake: Confusing the detailed subsidiary ledgers of trading partners with general balance sheet categories

One might mistakenly pick undervalued closing stock or returns inwards, thinking they boost income or reduce expenses. Reducing provision for doubtful debts decreases bad debt expense, increasing net profit; depreciation, undervalued closing (increases COGS), returns inwards decrease profit. Common mistake: Forgetting that a lower expense provision effectively frees up capital and boosts net income

A student might select accrual or consistency concepts, confusing operating lifespan assumptions with matching or comparison rules. Going concern assumes the business continues indefinitely, justifying capitalization of assets and accrual accounting over liquidation basis. Common mistake: Mixing up the temporal assumption of indefinite operation with timing rules for revenues and expenses

A student might choose reducing cost or suppressing profits, misinterpreting the administrative goals of uniform accounting. Consistency ensures uniform accounting methods over periods, allowing comparability of financial statements for informed decisions. Common mistake: Assuming consistency aims at manipulating reported figures rather than maintaining stable, comparable reporting methods

A student could mistakenly choose the matching or cost concepts, since both deal with recording financial transactions. Realisation (or revenue recognition) principle records revenue when earned (goods delivered/services rendered), not when cash received. Common mistake: Confusing the timing of cash collection with the actual earning milestone for revenue recognition

One might mistakenly select option B or C by adding closing stock instead of subtracting it from available inventory. COGS calculates the cost of inventory sold during the period: beginning inventory + purchases - ending inventory. Common mistake: Adding ending inventory back into the cost pool instead of removing unsold goods