ILLUSTRATION 1
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
.
.
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 2
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 3
(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 4
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 5
(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 6
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 7
(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 8
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 9
“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 10
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 11
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
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ACC 101 Lecture Notes:
Financial Statements:
Text Book by Patriot Odunaro B.J:
13 Review Questions:
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