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ILLUSTRATION 1
What do you understand by Accounting?
SUGGESTED SOLUTION
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.
ILLUSTRATION 2
State the importance of Book-Keeping and Accounting.
SUGGESTED SOLUTION
The following are the importance of Accounting
and Book-Keeping:
i.
It
helps to determine the profitability of a business concern.
ii.
The
assets and liabilities of a business are shown.
iii.
The
records show the income and expenditure.
iv.
The
records are used by the tax department for tax assessments.
v.
The
records provide a means by which the finances of a business are controlled.
vi.
Book-Keeping
provides permanent records for all financial transactions.
ILLUSTRATION
3
List and explain six needs for Accounting.
SUGGESTED SOLUTION
The needs for Accounting can be seen
from the following perspectives:
i. Stewardship Reporting
ii. Performance Review
iii. Business Decision Making
iv. Statutory Compliance
v. Requirement for Lending
vi. Tax Purposes
i.
Stewardship
Reporting: It
is necessary for the managers to report to the owners of the business on their
activities during the period under review.
ii.
Performance
Review: It
is natural of human beings to seek enhancement in their businesses. For
example, consider the case of Agbo Ma
Biwon Nigeria Limited who has the following data:
Years Capital Profit Return on Capital
# # %
2016 27,000 5,400 20
2017 40,500 18,225 45
Here,
there is a relative increase in profit in 2017 and as a result of increase in
return on capital, this mean high performance of the business under review.
iii.
Business
Decision Making:
Accounting helps in analyzing complex business decision problems using quantitative
techniques to suit the business environment.
iv.
Statutory
Compliance:
Companies and Allied Matters Decree 1990 requires all Limited Liability
Companies to keep accounts of their financial transactions in a specified
manner.
v.
Requirement for
Lending:
Financial statements are usually demanded before banks give loan.
vi.
Tax Purposes: Government
relies on audited financial statements for determining the taxes payable on the
profits and / or other incomes of an individual or company.
ILLUSTRATION 4
Briefly discuss the role of Accountants and types of
Accountants you know.
SUGGESTED SOLUTION
An Accountant is
a person who has undergone a formal or professional training in the process of
accounting and who belongs to at least one of the recognized professional accountancy
bodies such as Association of Certified Chartered Accountants (ACCA), the
Institute of Chartered Accountants of Nigeria (ICAN) among others.
The following are the roles of
Accountants:
i.
Preparation and presentation of timely
and accurate financial / accounting reports to management.
ii. Identification
of areas of inefficiency and wastage of resources.
iii. Treasury
functions i.e raising finance, cash management and so on.
iv. Setting
up effective system of internal and accounting controls.
v. Preparation
of feasibility reports i.e. these
reports assist management in assessing the viability / profitability or
otherwise of proposed capital expenditure such as the opening of a new factory
or branch.
The following are the types of
Accountants:
A. Financial
Accountant: This is an Accountant who records financial
transactions of a business organisation, analyses the financial information and
presents reports/ statements to the users of financial information such as
management in order to enable them assess the financial performance of the
organisation.
B.
Cost Accountant: This
is an Accountant who determines cost of goods or services produced or sold. The
availability of accurate information on cost of goods/ services will enable
management to fix appropriate selling prices. The Cost Accountant also helps
the organisation to effectively control costs thereby maximizing profits.
C.
Management Accountant: This
is an Accountant who uses his professional know-how and skill to prepare and
present accounting information to assist management in decision making for the
purpose of formulating policies for the organisation. In performance of his or
her duties, the Management Accountant largely compiles futuristic accounting
information as opposed to the Financial Accountant who records and presents
historical accounting information.
D. Tax
Accountant: This is an Accountant knowledgeable in tax laws. In
view of the complexities in the law and practice of taxation, a firm requires a
Tax Accountant who will use his knowledge to advice management on how to avoid
tax rather than evade tax. It must be mentioned that tax avoidance is legal
whereas tax evasion is illegal.
E.
Auditor: This is an
Accountant who examine the accounts and underlying financial records and
expresses an opinion on the truthfulness and fairness or otherwise of the
accounts. The Auditor is required to be independent of the person(s) whose work
he is scrutinizing. Where the Auditor is appointed by management to examine and
report on the work of the various officials/ sections/ departments in the
organisation, he is known as Internal Auditor. Where the Auditor is appointed
by the shareholders to report on the financial statement prepared by
management, he is known as External Auditor.
ILLUSTRATION
5
List the users of Financial Statement.
SUGGESTED SOLUTION
The users of Accounting
information include these among others.
i.
Owners
i.e. managers, shareholders and directors
ii. Employees
iii. Suppliers
iv. Trade creditor and
loan providers
v. Government
vi. Potential buyers of
the business
vii. Customers
viii. Financial /
Economic Analyst
ix. Supervisory and Regulatory bodies
x. Competitors
xi. General public
ILLUSTRATION
6
Book-Keeping is an integral part of
Accounting. Discuss.
SUGGESTED SOLUTION
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.
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.
ILLUSTRATION
7
“Book-Keeping is to Accounting, what Nursing is to Medicine”.
Discuss
SUGGESTED SOLUTION
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, what nursing is to medicine?
ILLUSTRATION 8
What is Double Entry Book-Keeping? State the basic Principle
of Double Entry Book-Keeping according to Luca Pacioli.
SUGGESTED SOLUTION
The Double Entry
Principle is methods of record- keeping by which at least two effect of each
transaction are recorded. The purpose of the double entry principle is to bring
out clearly the dual effects of transactions to an entity. The fundamental
principle states that “for every debit
entry there must be a corresponding credit entry and vice-versa”.
According to Luca Pacioli , the rules of double
entry are:
i.
The
keeping of books of accounts
ii.
The
division of each book into separate accounts
iii.
Each
account is divided into two halves, left hand side which is the debit side(Dr)
and right hand side which is the credit side (Cr)
iv.
All
transactions must be recorded in two accounts, one account is debited and
another account is credited.
v.
The
Giver (Giving account) is credited with the value of the items or goods and the
Receiver (Receiving account) is debited with the same amount.
vi.
Each
entry in the debit or credit must contain three things viz: the day of payment,
the amount of payment and the reason for the entry.
ILLUSTRATION
9
Explain what is meant by:
i. Nominal Accounts ii. Real Accounts iii. Personal Accounts
Give examples of each
SUGGESTED SOLUTION
i. Nominal Accounts: These are accounts for
recording items of expenses incurred, income received, losses made and gains
effected. Examples are rent account, discount received account, discount
allowed account, interest account and so on.
ii. Real Accounts: These are accounts in which
tangible things (such as cash, stock, building, machinery, fixtures and
fittings) are recorded. The rule is to debit what comes in and credit what goes
out.
iii. Personal
Accounts: These are accounts for recording names of individuals, firms or
business enterprises. The rule is to debit receiver and credit supplier.
Examples of personal accounts are Debtors Accounts, Creditors Accounts, T-Money
Account, Brain Drain Nigeria Limited and so on.
ILLUSTRATION 10
State
the advantages of Double Entry Book-Keeping System
SUGGESTED
SOLUTION
The followings are the
advantages of Double Entry Book-Keeping System:
i.
It
provides a complete record of every transaction from both personal and
impersonal.
ii.
It
makes for ease of tracing the two components of transactions i.e. posting are
cross-referenced to each other.
iii.
It
makes complete the records of each other.
iv.
It
provides an arithmetical check on the records since the total of the debit
entries must equal the total of the credit entries.
v.
From
the personal accounts the amounts owing to and by each person with whom the
business deals can at any time be ascertained.
ILLUSTRATION 11
(a) What do you understand by Accounts Balancing?
(b) You are required to show the Double Entry Book-Keeping
of the transaction and balanced the accounts for June 2017.
June 1 Mr. Famous started business with #250,000
cash.
June 4 Paid #235
cash for insurance.
June 6 The proprietor put a further #130,000 into
the bank.
June 7 Bought motor van
#100,000 paying by cheque.
June 11 Sold goods #650
on credit to David
June 12 Cash drawing
#3,500.
June 13 Purchase goods
#1,500 on credit from Totland.
June 15 Put cash
#75,000 into bank.
June 17 Received loan
#120,000 cash from Queen Aaliyat.
June 20 Withdrew
#17,500 cash from the bank for office use.
June 23 Goods worth
#300 were returned to a supplier-Totland.
June 25 Cash sales
#7,500 .
June 26 Cash purchases
# 4,750.
June 27 Goods worth #150
were returned to us by David.
June 30 Purchased
fixtures and fittings #5,750 by cheque.
SUGGESTED SOLUTION
(a) Accounts Balancing is the difference
between the total amount of debits and total amount of credits. Balancing of
accounts can be divided into the following:
i.
Debit balance: This occurs when the total of the debit exceeds credit
total.
ii.
Credit balance: This occurs when the total credit is greater than debit
total.
iii. Zero balance: This occurs when the
total credit is equal to the total debit.
(b) Capital
Account
#
#
June
30 Bal.c/d 380,000 June 1 Cash 250,000
June 6 Bank 130,000
380,000 380,000
July 1 Bal. b/d 380,000
Cash Account
#
#
June
1 Capital 250,000 June 4 Insurance 235
June
17 Queen Aaliyat 120,000 June 12 Drawings 3,500
June
20 Bank (C) 17,500 June 15 Bank (C) 75,000
June
25 Sales 7,500 June 26 Purchases 4,750
June 30 Bal. c/d 311,515
395,000 395,000
July
1 Bal. b/d 311,515
Insurance Account
#
#
June
4 Cash 235 June 30 Bal. c/d 235
235 235
July 1 Bal. b/d 235
Bank Account
#
#
June
6 Capital 130,000 June 7 Motor van 100,000
June
15 Cash (C) 75,000 June 20 Cash (C) 17,500
June 30 Fixtures & fittings
5,750
June 30 Bal. c/d 81,750
205,000 205,000
July
1 Bal. b/d 81,750
Motor van Account
#
#
June
7 Bank 100,000 June 30 Bal. c/d 100,000
100,000 100,000
July 1 Bal. b/d 100,000
Sales Account
#
#
June
30 Bal.c/d 8,150 June 11
SDB 650
June 25
Cash 7,500
8,150
8,150
July 1 Bal. b/d 8,150
Drawing Account
#
#
June
12 Cash 3,500 June 30 Bal. c/d 3,500
3,500
3,500
July
1 Bal. b/d 3,500
Purchases Account
#
#
June
13 PDB 1,500 June 30
Bal. c/d 6,250
June 26 Cash
4,750
6,250
6,250
July
1 Bal. b/d 6,250
Loan-Queen
Aaliyat Account
#
#
June
30 Bal. c/d 120,000 June 17 Cash 120,000
120,000 120,000
July 1 Bal. b/d 120,000
KEYS:
i. PL
represents Purchases Ledger
ii. SL represents Sales Ledger
iii.
RIL represents Returns Inwards Ledger iv.ROL represents Returns Outwards Ledger
Purchases
Day Book
Date Invoice
No. Particulars Folio Details Amount
# #
June 13 Totland PL 1,500 1,500
Total transferred to Purchases Account 1,500 Sales
Day Book
Date Invoice No. Particulars Folio Details Amount
# #
June 11 David SL 650 650
 |
Total transferred to Sales
Account 650
Returns Inwards Day Book
Date Credit note
No. Particulars Folio Details Amount
# #
June 27 David RIL 150 150
Total transferred to Returns Inwards Account 150
Returns Outwards Day Book
Date Credit note No. Particulars Folio Details Amount
# #
June 23 Totland ROL 300 300
Total transferred to Returns Outwards Account 300
Returns Inwards Account
#
#
June
27 David 150 June 30 Bal. c/d 150
150
150
July 1 Bal. b/d 150
Returns Outward Account
#
#
June
30 Bal. c/d 300 June 23 Totland 300
300
300
July 1 Bal. b/d
300
David Account
# #
June
11 Sales
650 June 27 Returns
Inwards 150
June 30 Bal. c/d
500
650
650
July 1 Bal. b/d 500
Totland Account
# #
June
23 Returns Outward 300 June 13 Purchases 1,500
June 30 Bal. c/d
1,200
1,500
1,500
July 1 Bal. b/d
1,200
Fixtures
and Fitting Account
#
#
June
30 Bank 5,750 June 30 Bal. c/d 5,750
5,750 5,750
July 1 Bal. b/d 5,750
ILLUSTRATION 12
Define source documents and explain source documents
that are known to you.
SUGGESTED SOLUTION
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.
ILLUSTRATION
13
(a) Define a Journal
and state its components.
(b) What are
the uses of Journal Proper?
(c) List advantages
of the Journal.
SUGGESTED SOLUTION
(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.
ILLUSTRATION 14
Explain five ways in which each of the subsidiary
books is posted to the ledger.
SUGGESTED SOLUTION
The followings are ways in which each of the
subsidiary books is posted to the ledger.
(a) Sales Day
Book or Sales Journal
Debit
(Dr.) Individual debtor’s account with the amount of credit sales made to each
debtor.
Credit
(Cr.) Sales account with total credit sales for the period.
(b) Purchases Day Book or Purchases Journal
Debit
(Dr.) Purchases account with total credit purchases for the period.
Credit
(Cr.) Individual creditor’s account with the amount of credit purchases made
from each
creditor.
(c) Returns
Inwards Day Book or Journal
Debit
(Dr.) Returns Inwards account with total sales returns for the period.
Credit
(Cr.) Individual debtor’s account with the amount of sales returns from each
debtor.
(d) Returns Outwards Day Book or Journal
Debit
(Dr.) Individual creditor’s account with the amount of purchases returns made
to them.
Credit
(Cr.) Returns Outwards account with total purchases returns for the period.
(e) Cash Book
Here,
the two sides of the cash book needs to be analyzed for better understanding.
The debit side of the cash book contains capital, sales, debtor’s
collections, and loan
received, cash lodgement as contra entry and so on.
ILLUSTRATION 15
(a)
What do you understand by a trial balance?
(b) Use the information under
illustration 11 (b), to extract a trial balance as at 30 June, 2017.
SUGGESTED SOLUTION
(a) A trial balance is a list of
all balances in order to test the arithmetic accuracy of the records in books
of accounts.
(b) Reader should take note that
for effective extraction of a trial balance. You must understand the principles
of double entry and also know how to balance ledger. All these had been dealt
with in illustration 11 (b). Let us now extract a trial balance.
MR.
FAMOUS
A
TRIAL BALANCE
AS
AT 30 JUNE, 2017
DR CR
# #
Capital 380,000
Insurance
235
Cash
311,515
Bank
81.750
Motor Van 100,000
Sales
8,150
Drawings
3,500
Purchases
6,250
Loan-Queen Aaliyat 120,000
Returns Inwards 150
Returns Outwards
300
Debtor-David 500
Creditors-Totland
1,200
Furniture and
fittings 5,750
509,650 509,650
ILLUSTRATION 16
(a) Explain
the errors which may exist in spite of the balancing of trial balance.
(b) List
errors which may cause disagreement of trial balance.
(c ) State the errors that do not affect trial
balance.
(d) State what the Accountant will do if the error
still cannot be located.
SUGGESTED SOLUTION
(a) The
errors which may exist in spite of the balancing of trial balance are as
follows:
i. Errors of
Omission: Where a transaction is completely omitted from the books.
ii. Errors of
Commission: This type is where the correct amount is entered but in the
wrong person`s account.
iii. Errors
of Principle: Where an item is entered in the wrong class of account.
iv. Compensating
Errors: Where errors cancels out
each other.
v. Errors of
Original Entity: Where the original figure entered is incorrect. E.g. if a
credit sale of N78 was entered in both the sales account and personal account
as N87.
vi. Complete
Reversal of Entries: Where the correct accounts are used but each item is
shown on the wrong side of the account. E.g. sale accounts debited and personal
account credited.
vii. Errors
of Duplication: This relate to transaction which are entered twice in the
books.
(b) Errors which may cause disagreement of trial
balance.
i. Errors in
addition or subtraction.
ii. Mistakes in posting to the wrong side of an
account.
iii. Transposition of number. E.g. Entering 25 as 52
iv. Transplacement of numbers-a slide as in
entering 200 as 20.
v. Omission
to make one of the two entries required under the double entry system.
vi. Omission of some ledger balances (including the
cash book) when extracting the trial balance.
vii. The making of the entries on the same side of
the ledger.
viii. Ledger balance entered on the wrong side of
the trial balance.
ix. Old
balance in the ledger not brought forward at the commencement of a new period.
x. Day book
totals not posted to the ledger.
xi. Discount columns of the cash book not posted to
the ledger.
(c ) The errors that do not affect trial balance may
come to light in a number of ways:
i. A
complaint from a customer may reveal the fact that he or she has been charged
in error with goods supplied to some other customer.
ii. Any error of principle or a compensating error
will very probably be discovered when the books are being audited.
(d) The
accountant must do the following if the error still cannot be located:
i. Re-add the trial balance
ii. Compare the trial balance figures with the
account balance and review to ascertain that the account balance is in the
appropriate money column.
iii. Verify the balance of each ledger account.
iv. Verify
postings to the ledger.
v. Verify journal
entries
vi. Review the transactions.
ILLUSTRATION 17
The following balances were extracted from the books
of Fesojaiye and Son on 31st August 2017.
N`000
Purchases 100,250
Capital 41,000
Returns Outwards 340
Land and Building 14,000
Loan 32,000
Stationery
1,260
Drawings 180
Insurance 940
Advertisement 420
Debtors 10,000
Carriage Outwards 220
Motor Van
2,050
Machinery 24,280
Creditors 14,000
Fixtures and Fittings
39,830
Returns Inwards 730
Discounts Allowed 160
Rent 260
Commission Receivable 1,400
General Expenses
2,260
Sales 141,000
Equipment 32,000
Discount Received 600
Salaries 1,500
Required: Prepare a trial balance as at 31st August,
2017 for Fesojaiye and Sons.
SUGGESTED SOLUTION
FESOJAIYE AND SON
TRIAL BALANCE
AS AT 31ST AUGUST, 2017
DR CR
N`000 N`000
Purchases 100,250
Capital 41,000
Returns Outwards 340
Land and Building 14,000
Loan 32,000
Stationery
1,260
Drawings 180
Insurance 940
Advertisement 420
Debtors 10,000
Carriage Outwards 220
Motor Van
2,050
Machinery 24,280
Creditors 14,000
Fixtures and Fittings
39,830
Returns Inwards 730
Discounts Allowed 160
Rent 260
Commission Receivable 1,400
General Expenses
2,260
Sales 141,000
Equipment 32,000
Discount Received 600
Salaries 1,500
______ ______
230,340 230,340
ILLUSTRATION 18
(a) Define
depreciation and state five causes for depreciation.
(b) State six methods of depreciation.
( c) 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, 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
SUGGESTED SOLUTION
(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
ILLUSTRATION 19
Define Bank Reconciliation Statement. State causes
of differences between the cash book and bank statement.
SUGGESTED SOLUTION
Bank Reconciliation Statement is defined as a
statement drawn by cashbook clerk to sort out difference between bank statement
and the bank column of the cashbook. When every entries in the cashbook is
entered in the bank ledger the two book ought to agree but in reality this is
not always so.
The following are the major causes of the difference
between bank balance as shown on the cash book and that of the bank statement:
i.
Unpresented Cheques
ii. Uncredited Cheques
iii. Errors by the bank
iv. Items that should have been credited to the cash
book but was not done because of delay in receiving debit advice from bank.
E.g. standing order, cheque book charges, bank charges, dishonoured cheques.
v. Items that should have been debited to the cash
book but not done because of delay in receiving credit advice from bank e.g.
credit transfer, dividend warrantee.
vi. Errors by the book keeper.
ILLUSTRATION 20
Efura started a photographic business under the
business name Efura Special Photos in
August, 2017. The following transactions relate to
the first month of operation.
2017:
August 1 Paid
N200,000 into bank.
August 5 Withdrew
cash N90,000 from bank.
August 7 Bought
two brand new cameras for N30,000 cash.
August 9 Paid
cash for supplies N45,000
August 11 Purchased
office equipment with cheque N25,000.
August
13 Received cash for work done
N56,000.
August 15 Bought
supplies with cash N10,000
August 18 Paid
cash for repair of equipment N15,000.
August 21 Withdrew
cash for personal use N12,000.
August 23 Paid
telephone bills for the month N6,600 by cheque.
August 25 Delivered
100 pieces of pictures at N200 on credit to customers.
August 27 Received
N18,000 cash from customers.
August 28 Bought
supplies with cash N5,000.
You are required to prepare the two-column cash book
for Efura for the month of August, 2017.
SUGGESTED SOLUTION
ILLUSTRATION 21
(a) Classify
the under listed ledger accounts into capital and recurrent.
i.
Depreciation Account vi.
Interest Paid Account
ii. Salaries and Wages Account vii. Discount Received
iii. Furniture and Fittings Account viii. Patent and Trade Marks Account
iv. Rent of Warehouse Account ix. Goodwill Account
v. Office Building Account x. Purchase Account
(b) Explain the accounting concepts you known
(c ) List three types of accounting convention.
SUGGESTED SOLUTION
(a)
S/N
|
CAPITAL
|
RECURRENT
|
i.
|
Depreciation Account
|
|
ii.
|
Salaries and wages Account
|
|
iii.
|
Furniture and Fittings Account
|
|
iv.
|
Rent of Warehouse
|
|
v.
|
Office Building Account
|
|
vi.
|
Interest Paid Account
|
|
vii.
|
Discount Received
|
|
viii.
|
Patent and Trade Marks account
|
|
ix.
|
Goodwill Account
|
|
x.
|
Purchase Account
|
(b) 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. Realisation: The concept establishes the
rule for the periodic recognition of revenue as soon as it is capable of objective measurement, and the value of asset
received or receivable is reasonably certain.
v. 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.
vi. Consistency:
The concept of consistency holds that when a company selects a method it should
continue to use that method in subsequent periods so that comparison of
accounting figures overtime is meaningful.
vii. Historical
Cost Concept: The historical cost concept holds that cost is the
appropriate basis for initial accounting recognition of all asset acquisition,
services rendered or received, expenses incurred, creditors and owners
interest. It also holds that subsequent to acquisition, cost value are retained
through out the accounting process.
viii. Money
Measurement Concept: The concept that financial accounting information
relates only to those activities which can be expressed in monetary terms.
ix. Materiality: The principle that financial statement should
separately disclose items which are significant enough to affect evaluation or
decisions.
(c ) The three types of accounting convention are as
follows:
i.
Materiality
ii. Conservation or Prudence
iii. Consistency
ILLUSTRATION 22
Foyegbe Nigeria Limited has the following
transactions in its cashbook and bank statements for September 2017.
CASHBOOK
|
|||
Lodgements:
|
N
|
Payments:
|
N
|
CHQ. 6789
|
28,000
|
CHQ. 123456
|
8,000
|
CHQ. 4591
|
24,000
|
CHQ.123457
|
12,000
|
CHQ. 4826
|
19,000
|
CHQ. 123458
|
15,000
|
CHQ. 4725
|
38,000
|
CHQ. 123459
|
25,000
|
CHQ.4228
|
18,000
|
CHQ. 123460
|
16,000
|
Cash
|
132,000
|
CHQ. 123461
|
3,000
|
Balance C/d
|
180,000
|
||
259,000
|
259,000
|
||
Balance B/d
|
180,000
|
||
BANK STATEMENT
|
|||
DR
N
|
CR
N
|
BALANCE
N
|
|
CHQ.123459
|
25,000
|
25,000
|
|
CHQ. 123458
|
15,000
|
40,000
|
|
CHQ. 4826
|
19,000
|
21,000
|
|
CHQ. 6789
|
28,000
|
7,000
|
|
CHQ. 123460
|
16,000
|
9,000
|
|
CHQ.4826 CONTRA
|
19,000
|
28,000
|
|
ICAN
|
500
|
28,500
|
|
COT
|
1,000
|
29,500
|
|
Commission
|
3,500
|
33,000
|
|
CHQ. 4228
|
18,000
|
15,000
|
|
CHQ. 123457
|
12,000
|
27,000
|
|
Cash
|
132,000
|
105,000
|
|
You are required to:
(a)
Prepare
an adjusted cash book
(b)
Reconcile
the adjusted cash book balance with the bank statement.
SUGGESTED SOLUTION
FOYEGBE NIGERIA
LIMITED
ADJUSTED CASH
BOOK
Balance b/f
|
180,000
|
Standing Order
|
500
|
Bank Chages-COT
|
1,000
|
||
Bank Chages-Commission
|
3,500
|
||
Balance c/d
|
175,000
|
||
180,000
|
180000
|
||
Balance b/d
|
175,000
|
BANK
RECONCILIATION STATEMENT
AS AT 31ST
SEPTEMBER, 2017
N N
Balance as per adjusted cash book 175,000
Add: Unpresented Cheques:
Cheque 123456 8,000
Cheque 123461 3,000 11,000
186,000
Less: Uncredited Lodgement:
Cheque 4591 24,000
Cheque 4826 19,000
Cheque 4725 38,000
81,000
Balance as per Bank Statement 105,000
ILLUSTRATION 23
Each major heading in the financial statements might be given a range of codes fromwhich codes can be selected for individual general ledger accounts.
As a student, state a chart of accounts for a
company of your choice.
SUGGESTED SOLUTION
GBOTEMI NIGERIA LIMITED
CHART OF ACCOUNTS
1000-1999 Non-Current
Assets
2000-2999 Current
Assets
3000-3999 Non-Current
Liabilities
4000-4999 Current
Liabilities
5000-5999 Equity
6000-6999 Income
7000-7999 Expenses
Individual ledgers accounts within the above range
for Non-Current Assets
1200 Land
1300 Office
building
1400 Warehouse
1500 Factory
ILLUSTRATION 24
The following Trial Balance was extracted from the
books of Aseye Nigeria Limited on 31st December, 2016.
DR CR
N 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
Returns 1,680 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
________ __________
3,005,070 3,005,070
Additional information is as follows:
i. The stock
at 31st December, 2016 was N323,610
ii. Depreciation to be written off as follows:
Premises
at 5 percent
6,000 of
value of motor vans
10 percent
off furniture
iii. Prepaid
rate N450, outstanding telephone N660, provide N9,000 for bad and doubtful debts.
Required:
(a) Prepare Trading, Profit or Loss account for the
year ended 31st December, 2016.
(b) Balance Sheet as at that date.
|
SUGGESTED SOLUTION
(a)
(b) 
ILLUSTRATION 25
(a) What
do you understand by Accounting Technology? Explain five features of an
Information System.
(b) Define
Data Processing and list three classes of Accounting Technology.
(c) State
four each merits and demerits of various methods of data processing.
SUGGESTED SOLUTION
(a) Accounting
Technology is the system of data processing employed in accounting. All systems
of data processing are composed of the same basic elements such as inputs,
processes, and outputs in a transformation process. It is described in the
diagram below:
|
|
|
The following are the features of information
System:
i. Timeliness: It must be available in
time. Undue delay may render valuable information to be worthless.
ii. Appropriateness: It should be within
the purview and understanding of the user.
iii. Accuracy: It should be free from
material or significant errors and misstatements.
iv. Brevity: It should not contain too much
details neither should it be scanty.
v. Understandability: The mode of
presentation should take the users` requirement into cognisance.
(b) Data
processing is an activity concerned with the systematic, recording, arranging,
filing, processing and dissemination of facts relating to the physical events
occurring in the business.
Three classes of Accounting Technology are as
follows:
i.
Manual
ii.
Mechanical
iii.
Electronic
(c ) i. Manual Method
Merits of Manual Methods of Data
Processing
a.
It
is relatively cheaper
b.
Visible
record of processing exists.
c.
Input
data can be used in the raw form.
d.
Suitable
for small businesses.
Demerit of
Manual Methods of Data Processing
a.
A
great deal of energy is involved.
b.
It
is prone to errors and inaccuracies.
c.
It
is relatively unreliable.
d.
It
takes longer time
ii. Mechanical Method
Merits of Mechanical Methods of
Data Processing
a.
Accuracy
of processing is guaranteed provided the input data are correctly entered.
b.
Lesser
time is used, hence facilitating more timely reports or output.
c.
Facilitates
savings in labour cost.
d.
Business
efficiency is facilitated.
Demerit of
Mechanical Methods of Data Processing
a.
It
is relatively more expensive than the manual method.
b.
Machine
breakdown may disrupt the flow of data processing
c.
Staff
may become mentally retarded.
d.
Cannot
cope with the large volume of data of large organisations.
iii.
Electronic Method
Merits
of Electronic Methods of Data Processing
a.
Very
fast i.e high speed
b.
Accuracy
of processing is guaranteed, given correct input data.
c.
Can
cope with large volume of data
d.
It
is very reliable.
Demerit of
Electronic Methods of Data Processing
a.
Initial
installation cost may be very high.
b.
No
visible record of data processing operations.
c.
Valuable
and important business data may be lost if the machine gets damaged.
d.
Technical
skill is required to operate on the computer.
ILLUSTRATION 26
(a)
List
five elements of Data Processing.
(b)
State
the comparison of data processing methods in reference to the elements of data
processing method.
SUGGESTED SOLUTION
(a)
The
five elements of Data Processing are as follows:
i.
Input ii. Processing iii. Storage
iv. Output v. Control
(b)
S/N
|
Element
|
Manual
|
Mechanical
|
Electronic
|
i.
|
Input
|
Consist of source documents like
customers order and suppliers invoices i.e. available for use directly from
the document.
|
Consist of source/ business documents.
The operator had to read data and input to the keyboard through the keys.
|
Data obtained from sources and
business documents must be converted to machine readable form for input.
|
ii.
|
Processing
|
Processing operations are performed
mentally or with the aid of pocket calculators. Records are manually updated.
|
Processing and updating of records are
done automatically by the machine.
|
Processing operations are carried out
by the arithmetic and logic unit of the central processing unit. It is also
automatic.
|
iii.
|
Storage
|
Records are stored on ledgers, sheets
and files which are kept in filling cabinets.
|
Records are stored both on ledgers,
files and in the internal register of the machine.
|
Storage of record are both internal in
the computer memory and external on magnetic tapes and discs.
|
iv.
|
Output
|
Output consist of business documents
(e.g invoices) updated ledger cards statement of accounts, operation reports.
|
Output consist of printed document
like statement of accounts, updated ledger cards, payroll and pay slips.
|
Output consist of printed documents
from the computer printer, display of output on the computer terminal, and
copying of output on magnetic tapes or discs.
|
v.
|
Control
|
Control is entirely manual by the
clerk performing the operations and his supervisor.
|
Processing steps are automatically
controlled by means of a control bar.
|
Processing operations are controlled
automatically by the computer software, and the control unit of the
computer`s central processing unit.
|
“IN ALL YOUR
GETTING, GET WISDOM! FUTURE BELONGS TO THOSE WHO PREPARE FOR IT”. BRITS!
It sounds like you're describing a manual control system where clerks and their supervisors directly oversee and manage operations.
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