TUTORIAL QUESTIONS WITH SOLUTIONS
1.
Book-Keeping
is to Accounting, as ICT is to Computing. Discuss
SOLUTION
TO QUESTION ONE:
Book-Keeping is to Accounting. Without Book-Keeping,
we would not be talking about Accounting.
So, what is Book-Keeping as well as Accounting?
Book-Keeping is an integral part
of accounting.
It is defined as the art of
recording financial transaction in such a manner that the financial position of
a business can be known at any time. What we are saying here, is that whenever
a financial transaction takes place, there must be a proper recording of such
transaction in order to reflect the dual aspect of a transaction i.e. the
giving aspect and the receiving aspect. It is the recording aspect of a
transaction that is referred to a double entry book-keeping.
Accounting is both a profession
and an academic discipline. It is defined by different people in different ways
from different perspectives.
American Institute of Certified
Public Accountants defined accounting as “the art of recording, classifying and
summarizing in a significant manner and in terms of money, transactions and
events which are in part at least of a financial character, and interpreting
the result thereof ”.
Frank Wood (1995: 181) defined
accounting as “the process of identifying, measuring, and communicating
economic information to permit informed judgements and decisions by users of
the information”.
The definition of accounting,
therefore, is the process of identifying; recording, analysing, classifying,
summarizing, interpreting and communicating financial data of an organization
to enable users make assessments and decision.
Accounting acts as the language
of business. It communicates in accounting terms, what should be paid to a
supplier or by a customer, the prices for a product or service the value of an
asset. It looks back at the past to record, analyze and report as a steward and
also looks into future and assists management with decision making and control.
Having shed light on what is
Book-Keeping and Accounting? Let us look at their importance.
The following are the importance of
accounting and book-keeping:
- It helps to determine the profitability of a business concern.
- The assets and liabilities of a business are shown.
- The records show the income and expenditure.
- The records are used by the tax department for tax assessments.
- The records provide a means by which the finances of a business are controlled.
- Book-Keeping provides permanent records for all financial transactions.
Based on the above analysis, conclusively, Book-keeping
is to Accounting, as ICT is to computing.
2.
Define
source documents and explain source documents that are known to you.
SOLUTION
TO QUESTION TWO:
Source documents are
business documents evidencing business transactions and forming the basis of
entries in the subsidiary books. For example, invoice, debit note, credit note,
receipt, cheques, pay-in-slips, bank statement, payment vouchers, statement of
account and so on.
i.
Invoice: An invoice is a document that establishes
indebtedness to the effect that money has not been paid or received for goods
and/ or services bought or sold. It evidences credit transactions which consist
of credit sales and credit purchases. It is recorded in the sales day book or
in the purchases day book. It shows the following particulars:
a. Date of
transaction b. Name and address
of the seller
c. Name and address of
the buyer d. Invoice number
e. Description of the
goods bought or services rendered
f. Unit price
g. Total amount h. Due date for payment
i. Rate of cash
discount if any j. Signature of the
seller
k. Signature of the
buyer
ii.
Debit Note: A debit note is a document that serves as a form
of supplementary invoice to increase the indebtedness of the recipient. It is
document sent by the seller to the buyer to correct an undercharge or when
goods are not charged on invoices due to omissions or arithmetic errors. The
buyer can also use it to claim an overcharge or for items returned to a seller.
It supports adjusting entries made in the journal proper.
iii.
Credit Note: A credit note is a document sent by a
supplier to his debtors stating that the debtors account has been credited thus
reducing his or her indebtedness. It is recorded in any of return inwards book,
return outwards book or journal proper, depending on the purpose for which the
credit note has been issued.
To avoid confusion it
must be printed in red. It can be viewed from two perspectives:
a.
Credit
note received from suppliers will be entered in the returns outwards book and then
debited to the suppliers account.
b.
Credit
note issued to customers will be entered in the returns inwards book and then
credited to the customer’s account.
Credit notes are issued
to:
i.
Correct
an overcharge on the invoice
ii. Grant refund on goods returned.
iv.
Receipt: A receipt is a
document that shows that money has been paid for goods and/ or services sold or
bought. It evidences cash transactions which is the receipt and payment of
cash. It is recorded in the cash book.
v.
Cheques: Cheques are
used to withdraw money from the bank. It is used to support entries in the bank
account column of the cash book maintained by the account holder.
vi.
Pay-In-Slips: Pay-In-Slips
are banking documents used in the operation of accounts with the bank. For a
current account, Pay-In-Slips or Tellers are used to lodge money into the
account. It is used to support entries in the bank account column of the cash
book maintained by the account holder.
vii.
Bank Statement: These are statement received by a
business or individuals that operate current accounts from its bank on a
periodic basis usually at the end of each month. It shows all the lodgements
made, withdrawals, bank charges and the balance on the account.
viii.
Payment Vouchers: These are document that provides evidence
of authorize to make payment for service received, goods bought, settlement
made and asset acquires by a business.
ix. Statement of Account:
This is a document sent by the seller at the end of each month to the buyer who
owes money on the last day of each month. It is really a copy of his or her
account in the seller’s book. It should show the followings:
a. Date b. Details
c.Debit d. Credit
e. Balance f. Amount owing at beginning
of the month.
g. Amount of each sales invoice sent to him or
her during the month.
h. Credit notes sent to
him or her in the month.
i. Cash and cheques
received from him or her during the month.
j. Amount due from him
at the end of the month.
3. The following information has been given to
you about factory plant and machinery of
Motirigbo Nigeria Limited.
Cost
N1 million
Scrap value N50,000
Useful life 4 years
As a
student of Lagos City Computer College, you are required to calculate the
annual
depreciation charges for each year using:
(i) Straight-line Method
(ii) Reducing Balance Method
(iii) Sum of the year Digit Method
SOLUTION
TO QUESTION THREE:
(a)
Depreciation is defined as the allocation of the depreciable amount of
an asset over its estimated useful life.
The five causes for depreciation are as follows:
i. Wear and
Tear
ii. Obsolescence- machinery rendered out of date by
later inventions.
iii. Passage of time
iv.
Evaporation e.g. chemical
v. Physical
Factors e.g. flood, excessive heat.
(b) The six
methods of depreciation are as follows:
i. Straight Line Method or Fixed Instalment Method
ii. Diminishing or Reducing Balance Method
iii. Sum of the year Digit Method
iv. Annuity
Method
v.
Revaluation Method
vi. Depletion
or Production Method
(c) Cost N1 million
Scrap
value N50,000
Useful
life 4
years
i.
Straight Line
Method:
Depreciation
= Cost of Fixed Asset –
Residual or Scrap Value
Estimated Useful
Life
Depreciation =
1,000,000 - 50,000
4
Depreciation = 950,000 = N237,500
4
Annual depreciation charged for the first year = N237,500
Annual depreciation charged for the second year = N237,500
Annual depreciation charged for the third year = N237,500
Annual depreciation charged for the fourth year = N237,500
ii.
Reducing Balance
Method
R = 1 - N√S/C
R= 1- 4√50,000
1,000,000
R = 1- 4√0.05
R= 1 – 0.47 =
0.53 or 53%
N
Cost 1,000,000
1st Year Depreciation (1,000,000 X 0.53)
530,000
Net Book Value 470,000
2nd Year Depreciation (470,000 X 0.53)
249,100
Net Book Value 220,900
3rd Year Depreciation (220,900 X 0.53)
117,077
Net Book Value 103,823
4th Year Depreciation (103,823 X 0.53)
55,026
Net Book Value 48,797
iii.
Sum of the Year
Digit Method
Year Allocation of sum of the year Depreciation Charged
Ratio X ( Cost- Scrap Value)
N
1 4 4/10 X ( 1,000,000-50,000) 380,000
2 3 3/10 X ( 1,000,000-50,000) 285,000
3 2 2/10 X ( 1,000,000-50,000) 190,000
4 1 1/10 X ( 1,000,000-50,000)
95,000
4. Write
short note on the following:
- Entity Concept
- Going Concern Concept
- Periodicity
- Matching Concept
- Materiality
SOLUTION
TO QUESTION FOUR:
i. Entity Concept: Every economic unit,
regardless of its legal form of existence, is treated as a separate entity from
parties having proprietary or economic interest in it.
ii. Going
Concern Concept: The assumption is that the business unit will operate in
perpetuity that is the business is not expected to be liquidated in the
foreseeable future.
iii. Periodicity: Although, the results of a business unit
cannot be determined with precision until its final liquidation, the business
community and users of financial statements require that the business be
divided into accounting periods usually one year and that changes in position
be measured over these periods.
iv. Matching Concept: The concept hold that for any accounting
period, the earned revenue and all the incurred cost that generated that
revenue must be matched and reported for the period.
v. Materiality:
The principle that financial
statement should separately disclose items which are significant enough to
affect evaluation or decisions.
5. a. Define a Journal and state its components.
- What are the uses of Journal Proper?
- List advantages of the Journal.
SOLUTION
TO QUESTION FIVE:
(a) The Journal is also referred to as General
Journal or Principal Journal or Journal Proper. The Journal Proper is the
subsidiary book in which entries which might not fit into any of the day books
so far considered in the previous chapters are recorded.
The Journal can also be
defined as a book of original entries or prime entries in which transactions
are recorded in chronological order (i.e. the day-to-day recording of
transactions are arranged according to when they occur).
The Journal refers to
daily record into which transactions are entered and classified as debit (Dr.)
and credit (Cr.) before they are posted to the ledgers. The entries are
recorded and explanation will be given to show the nature of the transactions.
The Journal will
contain for each transaction:
i.
The
date of each transaction
ii.
The
name of the account(s) to be debited and the amount(s).
iii.
The
name of the account(s) to be credited and the amount(s).
iv.
The
narrative (i.e. a description of the transaction)
v.
A
reference number should be given for the documents giving proof of the
transaction.
(b) The uses of journal
proper can be examined as follows:
i.
Opening Entries
ii.
Entries for the Purchase of Fixed Assets
on Credit
iii.
Entries for the Sale of Fixed Assets on Credit
iv.
Entries for other credit transactions
other than the purchase and sale of goods on credit.
v.
Transfers between Accounts
vi.
Writing Off Bad Debts
vii.
To answer questions on Double-Entry
Principle.
viii.
Correction of Errors
ix.
Closing Entries
(c) The following are the advantages of Journal.
i.
It provides a convenient record of
transactions in chronological order.
ii.
It provides a summarized narration of each
transaction.
iii. It provides in one place a complete picture
of each transaction.
iv. It serves as a source of future reference to
the accounting transactions of an
enterprise.
v. It makes fraud more difficult.
vi. It reduces the risk of omission of
transactions.
vii. It reduces the risk of entering the item once
only instead of having double entry.
viii. It makes tracing
of errors easier when errors arise.
REVIEW QUESTIONS
REVIEW QUESTIONS
1. Sogbae
Nigeria Limited is maintaining a petty cash book with the following analysis
column:
postage, transport, general expenses, advertisement and fuel.
The cashier
is given a cash float of N50,000, reimbursement being made to cashier at the
end of
each week.
The
following transactions took place:
July 16,
2018 Postage stamps purchased N3,500.
July 16,
2018 Fare on delivery parcel N2,500.
July 17,
2018 Cost of registration letter N9,500.
July 18,
2018 Petrol for van N7,500.
July 19,
2018 Advertisement on local
Newspaper N10,000.
July 19,
2018 Paid creditor N10,000.
July 20,
2018 Paid for tea and milk for office
staff N5,500.
July 23,
2018 Petrol and oil for van N7,500.
July 23,
2018 Postage on parcel N2,500.
July 24,
2018 Traveller`s order book bought N4,000.
July 25,
2018 Paid creditor N10,000.
July 26,
2018 Transport fare to Ikoyi N5,000.
July 26,
2018 Paid officer cleaners N6,000.
July 27, 2018
Cash count N15,000.
From the
knowledge acquired through the study of petty cash book, you are required
to :
(a)
Prepare
petty cash book from the above information.
(b)
How
much is the reimbursement for:
i.
Third
week of July 2018.
ii.
Four
week of July 2018.
HINTS:
i.
Third
week of July 2018 is from July 16, 2018 to July 22, 2018.
ii.
Fourth
week of July 2018 is from July 23, 2018 to July 29, 2018
2. You are required to prepare a trial balance as at
31st December 2017.
The
following balances were extracted from the books of Aseye Nigeria Limited on
31st
December, 2017.
N
Premises 150,000
Motor Vans 27,810
Capital 1st January, 2016 483,720
Advertising 3,810
Postage 4,140
Purchases 2,054,550
Electricity 2,730
Salaries 85,110
Tenement Rate 3,030
Telephone 1,020
Furniture 33,120
Sales 2,204,940
Return inwards 1,680
Return outwards 11,760
Bad Debts 780
Insurance 5,760
Commissions received 52,500
Debtors 146,460
Creditors 252,150
Cash in hand 10,560
Bank
113,760
Stock 1st January, 2016 360,750
3. Book-Keeping is to Accounting, as nursing
is to medicine. Discuss
4. Define
source documents and list ten source documents that are known to you.
5. The following information has been given to
you about factory plant and machinery of
Ajimatanraeje
Nigeria Limited.
Cost N5
million
Scrap
value N250,000
Useful
life 5
years
As a student
of Lagos City Computer College, you are required to calculate the annual
depreciation charges for each year
using:
(a) Straight-line Method
(b)
Reducing Balance Method
(c) Sum of the year Digit Method
6. Write
short note on the following:
- Entity Concept
- Going Concern Concept
- Periodicity
- Matching Concept
- Materiality
Patriot Odunaro B.J.
08038454008
No matter your industry or type of business, it's important that you manage your finances and keep your accounting records up-to-date. Accounting helps you to monitor the health of your company.
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