The primary qualitative characteristics of useful financial information are
According to IFRS Conceptual Framework, relevance and faithful representation are the fundamental qualitative characteristics that make financial information useful for decision-making.
Which of the following items is found on the debit side of a trial balance?
Purchase of a new engine is debited to the asset account (debit side in trial balance), while provision for doubtful debts and discounts are credits; fuel is expense debit but engine is capital.
Which of the following is a capital expenditure?
Capital expenditure increases the value of fixed assets and is capitalized, like purchasing plant; fuel and maintenance are revenue expenditures expensed immediately.
Credit notes received are entered in
Credit notes received from suppliers for returns outwards are recorded in the returns outwards journal, reducing purchases.
A document forwarded to a supplier showing amount due for unsatisfactory goods is
A debit note is sent to suppliers to claim a reduction for faulty goods, requesting a credit adjustment.
The claim of a creditor against a business is
Creditors' claims are liabilities, representing amounts owed by the business for goods or services received on credit.
The apportionment of cost of a fixed asset to the profit and loss account is termed
Depreciation systematically allocates the cost of a fixed asset over its useful life as an expense in the profit and loss account.
Entries in the purchases journal are transferred to the
Purchases journal records credit purchases, posted to individual supplier accounts in the payables (creditors) ledger.
A reduction in price to encourage prompt payment is
Cash discount is offered to customers for early payment within a specified period, improving cash flow.
Tei Ltd offered 1560 units of a magazine at GH¢60.00 each. Trade discount is 10% and cash discount is 10% within 30 days. The amount payable if payment is made on the 40th day is
Gross amount = 1560 × 60 = GH¢93,600. Trade discount 10% = GH¢9,360. Net payable (no cash discount on 40th day) = GH¢84,240.
Tei Ltd offered 1560 units of a magazine at GH¢60.00 each. Trade discount is 10% and cash discount is 10% within 30 days. The cash discount allowed on the 30th day is
After trade discount, net = GH¢84,240. Cash discount 10% = GH¢8,424, allowed for payment within 30 days.
An amount of Le200 received from a customer, Kofi, has been credited to another customer, Kofi's account. This is an error of
Error of commission occurs when the correct amount is posted to the wrong account, here crediting the wrong customer's account.
Current assets less current liabilities is
Working capital measures short-term liquidity as current assets minus current liabilities, indicating ability to meet short-term obligations.
A debit balance of GH¢420 on the Purchases Ledger Control Account means that as at that date
Debit balance in creditors control indicates payments or returns exceed purchases, meaning overpayment to creditors by GH¢420.
Sales and Purchases ledgers are used in a business to keep records of
Sales ledger tracks individual debtors (customers), purchases ledger tracks individual creditors (suppliers) for detailed subsidiary records.
Which of the following activities will increase profits?
Reducing provision for doubtful debts decreases bad debt expense, increasing net profit; depreciation, undervalued closing (increases COGS), returns inwards decrease profit.
The concept that implies that a business will operate for an indefinite long period of time is
Going concern assumes the business continues indefinitely, justifying capitalization of assets and accrual accounting over liquidation basis.
The consistency concept aims at
Consistency ensures uniform accounting methods over periods, allowing comparability of financial statements for informed decisions.
The concept which states that revenue is recognized when goods are sold is
Realisation (or revenue recognition) principle records revenue when earned (goods delivered/services rendered), not when cash received.
Cost of goods sold is
COGS calculates the cost of inventory sold during the period: beginning inventory + purchases - ending inventory.
The wages of an office cleaner is classified as
Office cleaner's wages are indirect costs related to administration, charged to administrative overheads in the profit and loss account.
Use the following information: Sales Le120,000; Purchases Le100,000; Opening stock Le10,000; Closing stock Le20,000. The cost of goods sold is
COGS = Opening stock + Purchases - Closing stock = Le10,000 + Le100,000 - Le20,000 = Le90,000.
Use the following information: Sales Le120,000; Purchases Le100,000; Opening stock Le10,000; Closing stock Le20,000. The gross profit or loss is
Gross profit = Sales - COGS = Le120,000 - Le90,000 = Le30,000.
The amount set aside out of profits to strengthen the financial position of the business is
Reserves are portions of profit transferred to a reserve account to bolster financial stability, e.g., general or specific reserves.
A fall in value of a fixed asset due to technological changes is described as
Obsolescence is the loss in asset value due to new technology rendering it outdated, even if physically functional.
A credit entry is made in the Plant and Machinery Account for
Sale of plant is credited to reduce the asset account balance, with proceeds debited to cash/bank.
In a manufacturing account, royalties paid is
Royalties, as direct production costs for rights to manufacture, are debited to the manufacturing account as part of prime cost.
One of the components of manufacturing account is
Depreciation on plant and machinery is a factory overhead debited to the manufacturing account, allocating fixed asset cost to production.
Use the following information: Direct materials used GH¢64,000; Direct labour used GH¢30,000; Production overheads GH¢22,000; Work in progress at beginning GH¢9,000; Work in progress at close GH¢14,000. Total cost of production is
Factory cost = direct mat + direct lab + overhead = GH¢64,000 + GH¢30,000 + GH¢22,000 = GH¢116,000. Cost of production = factory cost + beg WIP - end WIP = GH¢116,000 + GH¢9,000 - GH¢14,000 = GH¢111,000.
Use the following information: Direct materials used GH¢64,000; Direct labour used GH¢30,000; Production overheads GH¢22,000; Work in progress at beginning GH¢9,000; Work in progress at close GH¢14,000. Prime cost of production is
Prime cost = direct materials + direct labour = GH¢64,000 + GH¢30,000 = GH¢94,000.
The balance on the sales ledger control account at the end of the year represents total
The sales ledger control account balance equals the total of individual debtors' balances, representing net trade debtors.
Use the following information: Trade debtors 01/01/2016 GH¢80,000 and 31/12/2016 GH¢100,000; Trade creditors GH¢30,000 and GH¢40,000; Stock GH¢70,000 and GH¢90,000; Cheques received from trade debtors in 2016 GH¢350,000; Payments made to trade creditors in 2016 GH¢220,000. Credit sales for 2016 is
Credit sales = Closing debtors + Cash received from debtors - Opening debtors = GH¢100,000 + GH¢350,000 - GH¢80,000 = GH¢370,000.
Use the following information: Trade debtors 01/01/2016 GH¢80,000 and 31/12/2016 GH¢100,000; Trade creditors GH¢30,000 and GH¢40,000; Stock GH¢70,000 and GH¢90,000; Cheques received from trade debtors in 2016 GH¢350,000; Payments made to trade creditors in 2016 GH¢220,000. Credit purchases for 2016 is
Credit purchases = Closing creditors + Payments to creditors - Opening creditors = GH¢40,000 + GH¢220,000 - GH¢30,000 = GH¢230,000.
The excess of assets over liabilities is
In balance sheet equation, Assets - Liabilities = Owner's equity (capital or surplus in non-profits).
The excess of income over expenditure in a non-profit making organization is called
Non-profits use 'surplus' for excess income over expenditure, transferred to accumulated fund, unlike 'profit' in businesses.
The document prepared by a non-profit making organization to show the financial position at the end of the accounting period is
The balance sheet shows assets, liabilities, and accumulated fund, reflecting the financial position like in businesses.
The parties who are paid last in the event of winding-up are
In liquidation, ordinary shareholders (equity holders) are residual claimants, paid after secured (debentures), preferential creditors, and preference shareholders.
An event that will not require a change in the profit-sharing ratio of partners in a firm is when
Asset appreciation affects total capital but not the ratio unless specified; death, retirement, admission typically require ratio adjustment or dissolution.
Use the following information: Net profit GH¢17,460; Capital Account: Taiwo GH¢50,000, Obi GH¢40,000; Drawings Account: Taiwo GH¢12,000, Obi GH¢10,000; Salary-Obi GH¢1,500; Interest on capital 5%; Interest on drawings 4%; Profit sharing ratio 3:2 for Taiwo and Obi respectively. Taiwo's share of profit is
Interest on capital: Taiwo GH¢2,500, Obi GH¢2,000 = GH¢4,500. Interest on drawings: Taiwo GH¢480, Obi GH¢400 = GH¢880 (added back). Profit to share = 17,460 - 1,500 - 4,500 + 880 = GH¢12,340. Taiwo 3/5 × 12,340 = GH¢7,404.
Use the following information: Net profit GH¢17,460; Capital Account: Taiwo GH¢50,000, Obi GH¢40,000; Drawings Account: Taiwo GH¢12,000, Obi GH¢10,000; Salary-Obi GH¢1,500; Interest on capital 5%; Interest on drawings 4%; Profit sharing ratio 3:2 for Taiwo and Obi respectively. Obi's share of profit is
Profit to share GH¢12,340. Obi 2/5 × 12,340 = GH¢4,936.
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