A quality of accounting information is that it should be
Verifiability is one of the enhancing qualitative characteristics of financial information according to the Conceptual Framework for Financial Reporting. It means that different knowledgeable and independent observers could reach consensus that the information faithfully represents the economic phenomena it purports to represent, thereby increasing user confidence in the financial statements.
When the letter 'C' is written in front of an entry in the folio column of a cash book, it shows a
A contra entry in the cash book is indicated by 'C' in the folio column. It represents transactions between the cash and bank columns, such as cash deposited into the bank (debit bank, credit cash) or cash withdrawn from the bank (debit cash, credit bank), allowing for internal cross-referencing without a separate journal entry.
To show the evidence of payment, the revenue collector issues
A receipt voucher is issued by the revenue collector to the payer as official evidence that payment has been received. This document acknowledges the transaction and serves as proof for the payer's records, ensuring accountability in revenue collection processes.
The primary concern of shareholder in a business is the
Shareholders are owners of the company and their primary interest is in maximizing returns on their investment, primarily through dividends. Dividend payable directly affects their income, whereas other items like taxable profit or employee welfare are secondary concerns.
In a not-for-profit organization, accumulated fund is
The accumulated fund represents the net assets of a not-for-profit organization, calculated as total assets (fixed assets + current assets) minus total liabilities. It reflects the excess of revenues over expenditures accumulated over time, similar to owner's equity in profit-oriented entities.
Use the following information to answer this question: Trade creditors on 01/01/17: N630,000; Trade creditors on 31/12/17: N780,000; Cash paid to trade creditors in 2017: N2,700,000. Purchases for 2017 was
Using the creditors control account reconciliation: Closing creditors = Opening creditors + Purchases - Cash paid. Therefore, Purchases = Closing creditors + Cash paid - Opening creditors = N780,000 + N2,700,000 - N630,000 = N2,850,000. This determines the credit purchases for the period.
Use the following information to answer this question: Trade creditors on 01/01/17: N630,000; Trade creditors on 31/12/17: N780,000; Cash paid to trade creditors in 2017: N2,700,000; Stock on 01/01/17: N540,000; Stock on 31/12/17: N630,000. Cost of goods sold was
Purchases = N2,850,000 (from question 6). Cost of Goods Sold (COGS) = Opening stock + Purchases - Closing stock = N540,000 + N2,850,000 - N630,000 = N2,760,000. COGS represents the cost of inventory that was sold during the accounting period, used in calculating gross profit.
In public sector accounting, salaries of employees is classified as
Salaries are recurring operational costs essential for day-to-day government functions and are classified as recurrent expenditure in public sector accounting. This classification helps in budgeting for ongoing expenses separate from one-time capital outlays.
Kadiri paid his debt to Suleman by cheque. The accounting entries in Kadiri's books are:
When paying a creditor (Suleman) by cheque, debit Suleman's account (to reduce the liability) and credit the bank account (to reduce the asset). This double-entry records the settlement of the debt correctly.
The concept which seeks to prevent profits from being overstated is
The prudence concept (also known as conservatism) dictates that anticipated losses should be provided for, but anticipated profits should not be recognized until realized. This ensures that profits are not overstated, promoting cautious and reliable financial reporting.
Use the following information to answer this question: April 11: Sold goods for cash N50,000; April 20: Bought postage for cash N5,000; April 26: Cash sales N49,000; April 28: Cash purchases N11,000; April 30: Paid salaries N18,000. Total cash receipts for the period is
Cash receipts are inflows from sales: April 11 N50,000 + April 26 N49,000 = N99,000. Outflows like postage, purchases, and salaries do not affect receipts. This total is used to update the cash book for liquidity tracking.
Use the following information to answer this question: April 11: Sold goods for cash N50,000; April 20: Bought goods for cash N30,000; April 26: Bought postage for cash N5,000; April 28: Cash purchases N11,000; April 30: Paid salaries N18,000. The cash balance at the end of the period is
Assuming zero opening balance, cash receipts = N50,000 + N49,000 = N99,000. Cash payments = N30,000 (goods) + N5,000 (postage) + N11,000 (purchases) + N18,000 (salaries) = N64,000. Closing balance = N99,000 - N64,000 = N35,000. This net figure indicates the cash position at period end.
Use the following information to answer this question: The directors of Olu Ltd. recommended a dividend of 10% on 1,000,000 ordinary share capital of GH¢2.00 each. The amount of dividend declared is
Total share capital = 1,000,000 shares × GH¢2.00 = GH¢2,000,000. Dividend at 10% = 10% × GH¢2,000,000 = GH¢200,000. This declared amount becomes a current liability until paid and is deducted from retained earnings.
Goodwill is recognized in partnership
Goodwill is recorded when admitting a new partner to account for the premium paid for the existing partnership's reputation, customer base, and earning potential. It is calculated based on average profits and adjusted in the capital accounts.
Mark-up on a product is 2/3. The margin is
Mark-up is profit as a fraction of cost price (2/3), so if cost = 3 parts, profit = 2 parts, selling price = 5 parts. Margin = profit / selling price = 2/5. Alternatively, margin = mark-up / (1 + mark-up) = (2/3) / (5/3) = 2/5.
Quick ratio is calculated as x:y:z where
The quick ratio (acid-test ratio) = (Current assets - Stock) / Current liabilities. It assesses immediate liquidity by excluding inventory, which may not be quickly convertible to cash, providing a conservative measure of short-term solvency.
Use the following information to answer this question: Opening capital D10,800; Drawings D2,500; Net profit D6,000. The closing capital is
Closing capital = Opening capital + Net profit - Drawings = D10,800 + D6,000 - D2,500 = D14,300. This statement reconciles the change in owner's equity, assuming no additional capital introductions or other adjustments.
Use the following information to answer this question: Opening capital D10,800; Drawings D2,500; Trade creditors D2,560; Trade debtors D2,880; Cash in hand D1,000; Net profit D6,000. The working capital is
Working capital = Current assets - Current liabilities. Current assets = Trade debtors D2,880 + Cash D1,000 = D3,880. Current liabilities = Trade creditors D2,560. Thus, D3,880 - D2,560 = D1,320. It measures funds available for day-to-day operations.
In a single-entry accounting, purchases are ascertained using a
In single-entry systems, the creditors' control (or memorandum) account is used to derive purchases: Purchases = Cash paid to creditors + Closing creditors - Opening creditors. This reconstructs the missing double-entry for trading account preparation.
Goods bought from Samah for Le1,600 was entered into Shamail's Account. This is an error of
An error of commission involves posting a correct amount to the wrong account of the same type (e.g., wrong creditor's personal account). Here, the purchase was debited to Shamail instead of Samah. It does not affect the trial balance but misstates individual accounts.
If closing stock is undervalued, the cost of goods sold would be
COGS = Opening stock + Purchases - Closing stock. Undervaluing closing stock reduces the subtraction, overstating COGS. Gross profit = Sales - COGS, so overstated COGS understates gross profit, leading to conservative profit reporting.
Where fixed capital account is maintained, partner's share of profit is transferred to the
Under the fixed capital method, capital accounts remain unchanged, and profit shares (along with interest, salary, and drawings) are credited to the partner's current account. This separates fixed investments from fluctuating interests.
When bank charges are deducted from a customer's account, the balance on the bank statement would be
Bank charges are automatically debited by the bank, reducing the statement balance immediately. The cash book is updated later during reconciliation, so until then, the cash book overstates the bank balance compared to the statement.
Companies issue shares to the public in order to
Issuing shares to the public raises equity capital for business expansion, operations, or investments without creating debt obligations. It broadens the ownership base while providing necessary funds.
Sulah took two textile materials worth GH¢500 from his business for his children's use. This would be treated as
Withdrawals of goods by the owner for personal use are recorded as drawings, reducing owner's capital and inventory. Debit drawings account, credit purchases/stock account to reflect the personal consumption.
Use the following information to answer this question: Ajém and Ogah are in partnership sharing profits and losses in ratio 2:3. Interest on capital and drawings were 5% and 3% respectively. Capitals: Ajém GH¢60,000, Ogah GH¢65,000. Current accounts: Ajém GH¢40,000, Ogah GH¢50,000. Drawings: Ajém GH¢20,000, Ogah GH¢30,000. Salary: Ajém GH¢10,000. Net profit GH¢100,000. Ogah’s share of profit was
Salary to Ajém: GH¢10,000. Interest on capital: Ajém GH¢3,000, Ogah GH¢3,250 (total GH¢6,250). Interest on drawings: Ajém GH¢600, Ogah GH¢900 (total GH¢1,500). Residual profit = GH¢100,000 - GH¢10,000 - GH¢6,250 + GH¢1,500 = GH¢85,250. Ogah's share (3/5) = GH¢51,150. This ensures equitable distribution per agreement.
Use the following information to answer this question: Ajém and Ogah are in partnership sharing profits and losses in ratio 2:3. Interest on capital and drawings were 5% and 3% respectively. Capitals: Ajém GH¢60,000, Ogah GH¢65,000. Current accounts: Ajém GH¢40,000, Ogah GH¢50,000. Drawings: Ajém GH¢20,000, Ogah GH¢30,000. Salary: Ajém GH¢10,000. Net profit GH¢100,000. Ajém’s current account balance was
Opening current GH¢40,000 + Salary GH¢10,000 + Int. capital GH¢3,000 + Share GH¢34,100 (2/5 of GH¢85,250) - Drawings GH¢20,000 - Int. drawings GH¢600 = GH¢66,500. This closing balance reflects all appropriations and adjustments in the current account under fixed capital method.
Use the following information to answer this question: Ajém and Ogah are in partnership sharing profits and losses in ratio 2:3. Interest on capital and drawings were 5% and 3% respectively. Capitals: Ajém GH¢60,000, Ogah GH¢65,000. Current accounts: Ajém GH¢40,000, Ogah GH¢50,000. Drawings: Ajém GH¢20,000, Ogah GH¢30,000. Salary: Ajém GH¢10,000. Net profit GH¢100,000. Interest on drawings was
Interest on drawings: Ajém GH¢20,000 × 3% = GH¢600; Ogah GH¢30,000 × 3% = GH¢900. Total = GH¢1,500. This charge discourages excessive withdrawals and is debited to each partner's current account while added back to the residual profit for division.
Debtors Control Account is kept in the
The Debtors Control Account serves as a summary total of all individual debtor balances maintained in the sales ledger (personal ledger for debtors). It provides an overview in the general ledger while details are in the sales ledger for subsidiary records.
Where there is provision for depreciation, fixed asset is shown in the balance sheet at I. cost less depreciation for the period II. cost less depreciation to date III. written down values A. I only B. II only C. I and II only D. I, II and III
Fixed assets are presented at their net book value, which is historical cost less accumulated depreciation to date (II). Written down value (III) is synonymous with II, while I refers only to the current period's charge, not the balance sheet carrying amount.
The partner whose liability goes beyond his capital is a
A general partner has unlimited liability, personally liable for partnership debts beyond their capital contribution, potentially using personal assets. Limited partners' liability is restricted to their investment.
An effect of increase in the provision for depreciation is
Depreciation is an expense charged to the profit and loss account after gross profit. Increasing the provision increases total expenses, reducing net profit. It allocates asset cost over useful life but impacts profitability.
Uncredited cheques refer to cheques not yet credited
Uncredited (or uncleared) cheques are those presented for deposit but not yet processed and credited by the bank. They cause the cash book balance to exceed the bank statement during reconciliation until clearance.
Interim dividend paid in a year is
Interim dividends are appropriations of profit paid during the year, debited to the Profit and Loss Appropriation Account (reducing retained earnings) and credited to dividends payable. They are not direct expenses.
A feature of government accounting is that the
Government accounting often employs the cash basis, recording transactions only when cash is received or paid, to focus on cash flows and budgetary control rather than accrual-based profit measurement.
Use the following information to answer this question: Cost of raw materials available $32,000; Manufacturing wages $10,000; Factory expenses $5,000; Factory rent $3,000; Depreciation of plant and machinery $2,000; Closing stock of raw materials $0. The prime cost is
Prime cost = Direct materials + Direct labor = Raw materials available - Closing stock + Manufacturing wages = $32,000 - $0 + $10,000 = $42,000. It includes only direct production costs, excluding overheads.
Use the following information to answer this question: Cost of raw materials available $32,000; Manufacturing wages $10,000; Factory expenses $5,000; Factory rent $5,000; Depreciation of plant and machinery $2,000; Closing stock of raw materials $0. Factory overhead is
Factory overhead = Indirect manufacturing costs: Factory expenses $5,000 + Factory rent $5,000 + Depreciation $2,000 = $12,000. These are allocated to products via absorption rates to determine full production cost.
Capital and Drawings accounts are kept in the
The private ledger contains confidential owner-related accounts like capital and drawings to maintain privacy and organization, with control totals linked to the general ledger.
Set-off is carried out in the control account when
Set-off (or netting) applies when the same entity is both a debtor and creditor; mutual amounts are offset in control accounts, reducing the net balance owed or receivable for efficient settlement.
Use the following information to answer this question: Debtors balance on 01/01/16: Le2,518; Debtors balance on 31/12/16: Le1,979; Cash received: Le10,000; Discount allowed: Le280; Interest charged to debtors: Le251. The credit sales is
From debtors account: Credit sales + Opening debtors + Interest = Cash received + Discount + Closing debtors. Credit sales = Le10,000 + Le280 + Le1,979 - Le2,518 - Le251 = Le9,490. This reconstructs sales from collection data.
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