Professional Documents
Culture Documents
Course Facilitator:
ACC 101 BASIC ACCOUNTING I UNITS : 2
STUDY GUIDE
Course Code/ Title:
Credit Units:
Timing:
Total hours of Study per each course material should be twenty Six
hours (26hrs) at two hours per week within a given semester.
You should plan your time table for study on the basis of two hours
per course throughout the week. This will apply to all course
materials you have. This implies that each course material will be
studied for two hours in a week.
Similarly, each study session should be timed at one hour including
all the activities under it. Do not rush on your time, utilize them
adequately. All activities should be timed from five minutes
(5minutes) to ten minutes (10minutes). Observe the time you spent for
each activity, whether you may need to add or subtract more minutes
for the activity. You should also take note of your speed of
completing an activity for the purpose of adjustment.
Meanwhile, you should observe the one hour allocated to a study
session. Find out whether this time is adequate or not. You may need
to add or subtract some minutes depending on your speed.
You may also need to allocate separate time for your self-assessment
questions out of the remaining minutes from the one hour or the one
hour which was not used out of the two hours that can be utilized for
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ACC 101 BASIC ACCOUNTING I UNITS : 2
your SAQ. You must be careful in utilizing your time. Your success
depends on good utilization of the time given; because time is money,
do not waste it.
Reading:
When you start reading the study session, you must not read it like a
novel. You should start by having a pen and paper for writing the
main points in the study session. You must also have dictionary for
checking terms and concepts that are not properly explained in the
glossary.
Before writing the main points you must use pencil to underline those
main points in the text. Make the underlining neat and clear so that
the book is not spoiled for further usage.
Similarly, you should underline any term that you do not understand
its meaning and check for their meaning in the glossary. If those
meanings in the glossary are not enough for you, you can use your
dictionary for further explanations.
When you reach the box for activity, read the question(s) twice so that
you are sure of what the question ask you to do then you go back to
the in-text to locate the answers to the question. You must be brief in
answering those activities except when the question requires you to be
detailed.
In the same way you read the in-text question and in-text answer
carefully, making sure you understand them and locate them in the
main text. Furthermore before you attempt answering the (SAQ) be
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ACC 101 BASIC ACCOUNTING I UNITS : 2
sure of what the question wants you to do, then locate the answers in
your in-text carefully before you provide the answer.
Generally, the reading required you to be very careful, paying
attention to what you are reading, noting the major points and terms
and concepts. But when you are tired, worried and weak do not go
into reading, wait until you are relaxed and strong enough before you
engage in reading activities.
Bold Terms:
These are terms that are very important towards
comprehending/understanding the in-text read by you. The terms are
bolded or made darker in the sentence for you to identify them. When
you come across such terms check for the meaning at the back of your
book; under the heading glossary. If the meaning is not clear to you,
you can use your dictionary to get more clarifications about the
term/concept. Do not neglect any of the bold term in your reading
because they are essential tools for your understanding of the in-text.
Practice Exercises
a. Activity: Activity is provided in all the study sessions. Each
activity is to remind you of the immediate facts, points and
major informations you read in the in-text. In every study
session there is one or more activities provided for you to
answer them. You must be very careful in answering these
activities because they provide you with major facts of the text.
You can have a separate note book for the activities which can
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ACC 101 BASIC ACCOUNTING I UNITS : 2
activities. Make sure you are not in a hurry to finish but careful
to do the right thing.
e-Tutors: The eTutors are dedicated online teachers that provide
services to students in all their programme of studies. They are
expected to be twenty- four hours online to receive and attend to
students Academic and Administrative questions which are vital to
student’s processes of their studies. For each programme, there will
be two or more e-tutors for effective attention to student’s enquiries.
Therefore, you are expected as a student to always contact your e-
tutors through their email addresses or phone numbers which are there
in your student hand book. Do not hesitate or waste time in contacting
your e-tutors when in doubt about your learning.
You must learn how to operate email, because e-mailing will give you
opportunity for getting better explanation at no cost.
In addition to your e-tutors, you can also contact your course
facilitators through their phone numbers and e-mails which are also in
your handbook for use. Your course facilitators can also resolve your
academic problems. Please utilize them effectively for your studies.
Continuous assessment
The continuous assessment exercise is limited to 30% of the total
marks. The medium of conducting continuous assessment may be
through online testing, Tutor Marked test or assignment. You may be
required to submit your test or assignment through your email. The
continuous assessment may be conducted more than once. You must
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ACC 101 BASIC ACCOUNTING I UNITS : 2
make sure you participate in all C.A processes for without doing your
C.A you may not pass your examination, so take note and be up to
date.
Examination
All examinations shall be conducted at the University of Maiduguri
Centre for Distance Learning. Therefore all students must come to the
Centre for a period of one week for their examinations. Your
preparation for examination may require you to look for course mates
so that you form a group studies. The grouping or Networking studies
will facilitate your better understanding of what you studied.
Group studies can be formed in villages and township as long as you
have partners offering the same programme. Grouping and Social
Networking are better approaches to effective studies. Please find
your group.
You must prepare very well before the examination week. You must
engage in comprehensive studies. Revising your previous studies,
making brief summaries of all materials you read or from your first
summary on activities, in-text questions and answers, as well as on
self assessment questions that you provided solutions at first stage of
studies. When the examination week commences you can also go
through your brief summarizes each day for various the courses to
remind you of main points. When coming to examination hall, there
are certain materials that are prohibited for you to carry (i.e Bags, Cell
phone, and any paper etc). You will be checked before you are
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ACC 101 BASIC ACCOUNTING I UNITS : 2
allowed to enter the hall. You must also be well behaved throughout
your examination period.
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The need for accounting is more pronounced in a business where a lot of finance, risk
and energy are involved. Financial information is needed to plan and control the finance
and operation of a business. Accounting helps stewards to give proper records on the
assets put under their care.
In this Study Session, you will be learn about the origin and history of accounting,
definition of booking, definition of accounting, branches of accounting and accounting
activities, the various stakeholders (i.e. users) interested in the accounting information
and the regulatory frame-work, and rules that guides the practice of accounting.
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Definition 2
According to Boateng, (1884)”accounting is the process of identifying, measuring, and
communicating economic and financial information to permit informed judgment and
decision by the users of the information”.
Definition 3
Accounting is defined as the act of gathering financial information, classification of this
information, as well as summarizing and communicating these it to users for decision
making.
From these three definitions you can see that, this process starts from sorting relevant
transactions and posting them into their ledger accounts by considering the date,
particulars, the page or ledger folio and the amount. After posting, balancing the
accounts is the next exercise which is the bookkeeping activities. When individual
ledger accounts are balanced, then trial balance is drawn up. The act of keeping and
preparing this record from the source document to the trial balance is referred to as
(Book keeping)
Meaning of Bookkeeping;
how secure their job is and the ability of the business to pay good salaries and provide
good welfare facilities.
External Users of accounting information are not directly involved in running the
organization, but are interested in the financial information prepared and
communicated in the financial statement. These external users are;
(a) Customers: These are the people who purchase the goods or services provided by
the business.
(b) Tax authority: this is considered the government interest in the business, as every
business must pay tax to the tax authority i.e. the government.
(c) Trade Creditors: These are the people who supply goods to the business on
credit.
3. Banks and Other Financial Institutions Act (BOFIA) 1991-related directly to the
banking industry.
4. Insurance Act 2003-related directly to the Insurance industry.
Other regulations consist of the following accounting standards:
5. Statements of Accounting Standards (SAS) issued by NASB (now Financial
Reporting Standards (FRS) issued by Financial Reporting Council FRC).
6. International Accounting Standards (IAS) and International Financial
Reporting Standards (IFRS) issued by IASB from time to time.
Scope of Accounting
Though the main study is financial accounting; others relevant and supporting
branches are cost Accounting, Management Accounting, Auditing, Government
Accounting and Tax Management.
-Cost Accounting
Cost accounting is the process of accumulating financial data to provide information
for managerial decision
-
ManagementAcco
unting
Management accounting provides information to management of a business to
help them take better decision and to improve upon the efficiency and
effectiveness of existing operations.
-Auditing
Auditing is the independent examination of the books of accounts and records
of the company. The professional accountant will gather various forms of audit
evidence before he can form an opinion on the financial statementsto give it a “true
and fair view”.
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(c) Comparability: There should be no change in the basis for the preparation of
the accounting information from period to period so that it will be easy to compare the
results of operations over different accounting periods.
(d) Timeliness: Accounting information must be made available early enough for its
use. For instance, management requires certain information on daily basis or
weekly basis for effective running of the business; if it comes late it would be useless.
Annual reports and accounts must be published not long after the year end.
(e) Objectivity: There must be no bias, window dressing or subjective judgment in
the presentation of accounting information. Objectivity includes ability to trace
transactions to documentary evidence and complying with required regulations in its
presentation.
(f) Understandability: Accounting information must contain enough details for
good understanding. The details must neither be too little nor too much.
Career in accounting
The demand for accountants appears to be growing and outstripping supply. Job
opportunities in today’s business climate are better than ever for accountants. Accounting
has many areas of opportunities which can serve as career path. These are financial,
managerial, taxation, and other accounting related jobs and can be further broken into
careers like;
i. Financial accountants
ii. Financial analyst
iii. Banking and financial services
iv. Educational services
v. Liquidation and litigation services
vi. Taxation and consultancy services
vii. Employment - private and government. etc
1) Financial accounting is basically aimed at providing financial information about the business
to users both internal and external for decision making. You learnt that this information is
usually in the form financial statement.
2) You also learnt about the history of financial accounting and the Italian method now known
as the double entry system, upon which the double entry principle is developed.
3) Financial accounting is ruled based and principled based; you also learnt about the Generally
Accepted Accounting Principle (GAAP), which is the basic foundations upon which all
accounting principles and regulations are developed. You learnt that GAAP helps accountants
to prepare financial report that is reliable, relevant understandable, comparable and timely to
users of these information.
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4) That financial accounting provides a wide range of careers virtually in all sectors of the
economy.
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GAAP are the foundations upon which the four (4) basic accounting principles, four (4)
assumptions, two (2) constraints, and other given conventions and concept rest.
Learning Outcomes
At the end of this session, you should be able to:
2.1 Explain the four (4) basic accounting principles, the four (4) basic assumptions, the
two (2) constraints, and other given conventions and concepts.
2.2 Explain the various terminologies used in the statement of financial position.
2.3 Explain and demonstrate the Accounting Equation by application
performed or when a seller transfers ownership of products to the buyer. This principle is
aimed at explaining when and what should be allowed as credit transactions.
3. The expense recognition principle, also called the matching principle, holds that for any
accounting period, the earned revenue should be matched with the cost (expenditure) that
earned them and in the same year which the expenditure was incurred.
4. The full disclosure principle states that a company reports full in detailed information that
are materials in the financial statements, meaning any information which will affect the
decision of users must be reported.
2.1.2 Assumptions: Just like the four (4) basic principles, there are four (4) assumptions which
must hold for a valid transaction to be recorded;
1. The Going-concern assumption is a presumption that the business will continue to
operate for an unforeseeable future without being closed.
2. The Monetary unit assumption simply means that financial transactions are expressed in
monetary terms i.e. money unit such as the Naira in Nigeria, dollar in the United States etc.
3. The Time period assumption is the assumption that the business operations will be
accounted and reported for a period of 12 months. This concept is also known as periodicity
concept.
4. The Business entity assumption holds that all business be accounted for separately from
the owners and from other businesses eg. First bank is different form GT bank and both
companies are different from their owners, meaning they can sue and be sued.
2.1.3 Constraints: this places a limitation bound and guide to financial transactions to be recorded
for in the financial statement.
1. The materiality constraint prescribes that only information that would influence the
decisions of a reasonable person need be disclosed. Materiality concept is a relative term in
size and importance since what is material and important for one organization will not be for
another.
2. The cost-benefit constraint holds that only information whose benefits of disclosure is
greater than the costs of providing it to users need be disclosed in the financial statement.
2.1.3 Convention and concept: these are generally agreed ways to present a fact which will guide
in the way financial transactions can be presented and recorded.
1. Prudence concept requires fairness with sound judgment in reporting financial transaction
details, taking decision without favour to any specific shareholder.
2. Substance over Form Business transactions should be accounted for and presented in
accordance with their financial substance and reality and not merely by their legal form.
Examples are found in; lease contracts the reality is taken above the legal term
3. The Consistency concept requires that the adoption of a method and a policy in treating
an item should be maintained for a long time and should not be changed but used consistently
from period to period e.g depreciation or bad debt provision.
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4. Accrual concept states that revenues should be recognized in the period they are earned
and not in the period they are received and expenses should be recorded in the period they are
incurred and not in the period they are paid for.
5. Historical Cost Concept holds that the cost values of assets are retained throughout the
accounting books and the assets expire by writing off yearly depreciation to get the current
value.
6. Objectivity Concept holds that financial statements should not be influenced by personal
biasand that no group of stakeholder/user should be favoured over others.
7. Fairness principle requires that accounting reports should be prepared not to favour any
group or segment of society.
8. Realization Concept, unlike the accrual concept, is concerned with determining when
revenue is earned. It holds that revenue should be recognized at the time goods are sold and
services are rendered; that is the point at which the customer has incurred liability.
9. Double entry principle this is the oldest known and indisputable principle of accounting.
It is the principle upon which modern accounting is based. It explained that every transaction
must be recorded in the books at least two times- This also means that for every receiver
there must be a giver.
The double entry is the beginning point of the accounting equations, with every transaction
having an effect on at least two accounts. As far as double entry principle is concerned, there
must always be two parties to a transaction. Two recordings of any transaction, two
accounting records to a transaction. Put in accounting terms there must be a debit and a credit
to every transaction.
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These are the economic resources that aid income generation and will remain in the business
for more than one accounting period. They include land and buildings, motor vehicles,
equipment, machinery, furniture etc.
ii. Current Assets
These are the economic resources of the business which are easily converted to liquid cash or
can be used up within an accounting period e.g. cash in hand and at bank, all receivables
and inventories of goods
-Liabilities
These are obligation of the business to outsiders and to the owners and usually will become
claims against the assets of the business in the event of a liquidation. They are divided into
current liabilities and non-current liabilities.
i. Current Liabilities
These are the liabilities of the business that are meant to be paid within twelve months. e.g.
payables and all outstanding expenses.
ii. Non-current liabilities: These are liabilities that will take more than one year before
repayment is due. e.g. long-term loans.
Accounting Equation
The accounting equation is a mathematical representation of the statement of financial
position of a business at all-time showing its assets and the claims upon them in form of
liabilities and equity, all accounting entries and posting are demonstrated following the
accounting equation based on the double entry principles. The accounting equation is stated
as ASSETS=LIABILITIES + OWNERS (EQUITY)
Assuming that in addition to the cash invested, Yagana introduced N25, 000, loan from the
bank into the business. The cash position is now N175, 000, made up of owner’s capital of
N150, 000 and liability to an outsider N25, 000
Yagana Enterprises spent N120,000 to buy a building to be used as office and bought chairs
and tables for N10,000. It also purchased for cash some inventory for resale at the cost of
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N30,000. The accounting equation will remain as in (b) above but the composition of the
assets has changed.
Given different combinations of assets, liabilities and capital the equation continues to be the
same at each side and representing the equality of both side.
Summary
In Study Session 2, you have learned about:
i. Financial accounting is rule and principle based, and also about the basic
principles, assumptions, constraints, conventions and concepts of accounting.
ii. The various terms used in the Accounting Equation, such as assets, liabilities
and capital.
iii. The applications of the Accounting Equation showing its effects on the
statement of financial position.
ITQ Question Study Session 2
1. ………… are the economic resources of a business that are expected to bring
immediate and future benefits to the business.
2. The ……………. is a mathematical representation of the statement of financial
position of a business
ITA Answer Study Session 2
1. Assets
2. Assets = Capital + Liabilities
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References
Basic Accounting theory and practice 1 (2014) Dr. A. A. Malgwi, Mr. Victor O. Atabo
Financial Accounting Made Simple Robert Igben
Notes
You are advised to make these principle, assumptions, constraint, conventions and concept part
of you, know and understand them for they are the foundation of accounting when it comes to
application.
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Source documents
Journal
Ledgers
Trial Balance
Final Accounts
Learning Outcomes
After studying this session, you should be able to:
that a transaction has taken place. They are proofs for transactions that have taken place,
showing details of parties in the transaction i.e. who is receiving a benefit at what expenses,
details about the amount involved, date and item of trade.
Sales Invoices
A sales invoice serves as the source document to record in the sales day book. All credit sales
are recorded in the sales day book. The sales invoice is a document sent by the seller to the
buyer (usually for credit sales) and it is used as evidence for credit sales
Purchases Invoice
A purchase invoice serves as the source document to record in the purchases day book. The
purchases invoice is the opposite of the sales invoice sent by the supplier to the customer
usually for credit purchases transactions.
Credit note
A credit note is a document given to refunds cash to the buyer for either being overcharged or
for goods returned by a customer for any of the following reasons: - damage to the goods
before delivery- wrong specification etc.
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Debit note
A debit note to a supplier will be used to request for a credit note by the buyer. While at the
same time the seller may issue a buyer a debit showing that his account will be charged.
Payment Vouchers
In an organization every payment must be supported by a payment voucher. Examples are
payment vouchers for salaries and wages, petty cash vouchers etc, usually prepared as
evidence for the expenses.
Bank Pay-in-slips
This serves as evidence of cheque and cash paid into the bank by an organization and
individuals. It is evidence for money deposited in the bank.
Cheque Counterfoils
Cheque counterfoils serve as evidence of payment to creditors through the bank and
withdrawals using the cheque book.
Receipts
Receipts are issued for cash and cheques received from a customer for goods sold or services
rendered to him. It is evidence for cash paid by the customer.
Purchase Order
A purchase order is issued by a customer requesting the seller to supply certain quantities of
goods of specified description. The purchase order will also state the agreed price and the
delivery point and date. An example of a purchase order is the Local Purchase Order (LPO).
Delivery Note
Delivery note accompanies the goods dispatched to the customer, showing what is receipt by
the customer.
Goods Received Note
The good received note shows the evidence that the goods dispatched to an organization are
received in good condition and meet the specifications. It is used as source document in the
bin stock card.
Bin Card
Bin card records movement of inventories. When inventories are added to the store or
warehouse bin card is debited and when inventories are issued to production, the bin card is
credited.
- Subsidiary journals
The subsidiary journal is further divided into five - these are:
i. Sales day book; used to record all credit sales to customers. The total figure is credited to the
sales/revenue accounts as part of sales but credit sales to the customer. While the individual
customer accounts that made up the total credit sales are debited with their individuals figures
only as trade receivables (debtors).
ii. Purchases day book; used to record all credit purchases from suppliers. The total figure is
debited to the purchases accounts as part of purchase but credit purchases from suppliers.
While the individual trade payables/suppliers accounts that made up the total credit purchases
are credited with their individual’s figures only as trade payables (creditors).
iii.Sales returns book/Returns inward book; the sales returns book or returns inward book is
the book of original entry that records any returns on goods sold to customers with the total
debited to the return inward journals and the value of the returns credited to the individual
customers accounts.
iv. Purchases returns book/Returns outward book; The purchase returns book or returns
outward book is the book of original entry that records returns on goods purchased to the
suppliers or manufacturers. The total balance is credited to the returns outward accounts and
the individuals returns is debited to the
v. Cash book; The cash book records all cash and bank transactions from the source document
both receipt and payment. The cash book is divided into single, two and three colum cash
book and the petty cash book used to record minor expenses which are many and when
recorded in the cash book will make the transaction cumbersome. The cash book is divided
into two equal parts debit (Dr) and credit (Cr) side, usually shown in T format.
- General journal
General journal, also known as journal proper, is used to record all transactions that cannot be
recorded into the subsidiary journal. The following transactions that cannot be recorded in
the five subsidiary journals are;
1. Opening and closing entries
2. Transfer from one account to another
3. The purchases or the sales of fixed asset on credit
4. Adjustments in account
5. Correction of errors.
3.1.3 Ledger
The ledger which is the third stage of the accounting recording cycle contains information
from the journal the second time. The type of account maintained in a ledger is what makes it
a debit balance or a credit balance and determines whether the account will be increasing or
decreasing i.e. positive or negative.
DR CR
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N N
Accounts
Accounts are the financial transactions posted or recorded from the Journals into the ledgers,
this information determines the type of ledger, the financial effect on the ledger and whether
the ledger is increasing or reducing.
Asset account
(Debit) Increase Decrease (Credit)
Liability account
(Debit) Decrease Increase (Credit)
Capital account
(Debit) Decrease Increase (Credit)
Revenue account
(Debit) Decrease Increase (Credit)
Expenses account
(Debit) Increase Decrease (Credit)
Students should note that a ledger contains accounting information, sometimes used
interchangeably with accounts; this does not imply that they mean the same thing.
Chat of Accounts
Accounts can be grouped under three main headings; these headings are called chats of
accounts
1 Real Account
2 Personal Accounts
2 Nominal Accounts
Trial balance
DR CR
N N
All assets xx
All expenses xx
Gains/incomes Xx
All liabilities Xx
Capital/Equity Xx
Sales Xx
Purchase xx
xxx Xxx
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Other incomes:
Discount received xx
All received (e.g. rent received) xx
Reduction in liabilities xx
xxx
Less Expenses:
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ASSETS: N
Current Assets:
Inventory (Stock) Xx
Trade Receivables (Debtors) Xx
NBV
Less Provision for Bad debt Xx
Cash and Cash equivalent Xx
Cash at Bank Xx
tBill Receivables Xx
Prepayment expenses Xx
Accrued Income Xx
xx(a)
Investment Xx
xx(b)
Total assets xxx (a+b)
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Financed by:
Capital (Accumulated surplus) Xxx
Add: Net Profit Xx
Xxx
Less Drawings (xx)
Total equity xxx(z)
Total equity and liabilities xxx (z+xy)
3.3 Practical demonstration of the recording process from source document to the
final accounts.
Illustration 1
The following are the transaction of Makama Bala who started a business trading in general
merchandise in the month of January 2004;
N
January 1: started business with cash 20,000
January 2: paid rent in cash 1,400
January 3: took out of cash till and paid it into the bank 9,500
January 5: bought office furniture paid by cheque 1,270
January 6: cash sales paid direct into the bank by customer 6,960
January 7: Addo paid us by cheque 1,100
January 14: paid wage by cash 770
January 18: Garba Musa paid us in cash 2,900
January 22: paid Mustapha by cheque 1,680
January 24: cash sales 6,600
January 25: paid motor expenses by cheque 950
January 26: A customer name Aki paid us by cheque 1,880
January 27: withdrew from the bank for business use 3,000
January 28: paid carriage inward by cash 300
January 29: withdrew cash from bank for to petty cashier 2,000
January 30: electricity paid by cheque 500
January 30: Pat paid by cash 1,000
January 31: paid Mr. John a creditors by cheque 4,000
You are required to write up the cash book for the month of January 2004 and post the transactions to
their corresponding ledger entries.
Suggested Solution
Makama Bala
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You are required to prepare showing balance and reimbursement, at 31st January 2011 a petty
cash book with analysis column for all the payments made by the petty cashier on 31st January
Solution:
Maxwell Enterprises
Analysis of Petty Cash Book for January, 2014
N N N N N N
Date Particulars Amount Date Particulars Total Stat/Pos Transp Repairs Entert Medical
1-Jan Cash float 40,000 2-Jan Postage stamp 1,250 1,250
3-Jan Entertainment 750 750
4-Jan Stationary 1,500 1,500
5-Jan Travelling 500 500
6-Jan Repairs 1,810 1,810
7-Jan Notebook 300 300
8-Jan Courier Ser 1,725 1,725
11-Jan Security Lights 1,575 1,575
14-Jan Medical exp. 1,300 1,300
18-Jan Repairs 1,925 1,925
21-Jan Travelling 1,750 1,750
24-Jan Stationary 6,325 6,325
27-Jan Entertainment 5,125 5,125
28-Jan Medical exp. 1,060 1,060
30-Jan Stationary 3,750 3,750
30,645 14,850 2,250 5,310 5,875 2,360
Balance c/d 9,355
40,000 40,000
1-Feb Bal B/d 9,355
1-Feb Reimbursement 30,645
ILLUSTRATION
Jan. 1 Miss Faith starts a business with N800.00 in bank
Miss Faith is the owner of the business; therefore her name must not appear in the books
Entries in the ledger
DR CAPITAL ACCOUNT CR
N
N
Bank 800.00
DR BANK ACCOUNT CR
N N
Capital 800.00
DR PURCHASES ACCOUNT CR
N N
Bank 300.00
N N
PURCHASES 300.00
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N N
Cash 700.00
DR CASH ACCOUNT CR
N N
Sales 700.00
DR WAGES ACCOUNT CR
N N
Cash 50.00
DR CASH ACCOUNT CR
N N
Wages 50.00
N N
Bank 500.00
N N
Machinery 500.00
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DR CASH ACCOUNT CR
N N
Drawings 80.00
DR DRAWINGS ACCOUNT CR
N N
Cash 80.00
N N
Jan. 12 Baba 200.00
DR BABA ACCOUNT CR
N N
Jan. 12 Returned inward 200.00
Jan.17 Took cash N2, 400.00 from the bank and put it into cash till.
DR BANK ACCOUNT CR
N N
Jan. 17 cash 2,400.00
DR CASH ACCOUNT CR
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ACC 101 BASIC ACCOUNTING I UNITS : 2
N N
Jan. 17 Bank 2,400.00
DR JASPER ACCOUNT CR
N N
Jan. 20 Returned outward 100.00
DR COMMISSION ACCOUNT CR
N N
Jan. 22 Cash 350.00
DR CASH ACCOUNT CR
N N
Jan. 22 commission 350.00
N
N
Jan. 23 Bank 750.00
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ACC 101 BASIC ACCOUNTING I UNITS : 2
DR BANK ACCOUNT CR
N N
Jan. 23 loan 750.00
DR CAR ACCOUNT CR
N N
Jan. 25 Ojo 220.00
DR OJO ACCOUNT CR
N N
Jan. 25 car 220.00
N N
Jan 27 Cash 1,500.00
DR CASH ACCOUNT CR
N N
Jan. 27 Motor Vehicle 1,500.00
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ACC 101 BASIC ACCOUNTING I UNITS : 2
DR DRAWINGS ACCOUNT CR
N N
Jan. 30 Cash 1,00.00
DR CASH ACCOUNT CR
N N
Jan. 30 Drawings 1,000.00
- Error of Omission: This is an error whereby a transaction is completely omitted from the
books of account i.e. from both the debit and credit sides of the account related. This error is
corrected by entering the omitted amount in the journal and posting in the right way.
- Error of Commission: This is a situation whereby an item of transaction with an individual
is recorded correctly observing double entry but in the wrong person’s account. Usually a
Trade receivables or a Trade payables with similar names can be erroneously taken for the
other - for example Mohammed account mistaken as Muhammad account where both persons
trade with the business. This will only affect the names of individuals and not the figure in
the trial balance or the double entry process. Example: Goods worth N5, 000 sold to Ajaka on
credit has been entered in Ajala’s account in error.
- Error of Original Entry: This is where a wrong amount is entered on the debit and credit
sides of different accounts at the same time i.e. observing the double entry with the wrong
figure in the correct account. Therefore, the difference between the original amount and the
wrong figure is passed through the double entry system to correct the error. Example:
Purchase of goods for N5, 290 has been entered in the accounts as N5, 920.
The error will be corrected by crediting the difference between the two figures i.e. N630 to
the purchase account, at the same time debiting the cash account by the same N630. And
reverse the case where the figure has been reduced by still debiting the difference to
purchase account and credit the cash account.
- Error of Principle: Here wrong classes of accounts are involved. It occurs where a
transaction belonging to a class of account is posted to another class of account observing
correct double entry but in the wrong account. For example, a real account item is entered in
a nominal account or vice-versa. Example: purchase of furniture N10, 000 is posted in the
purchase account.
- Compensating Errors: This occurs when errors of the same amount occurred in different
sides of different ledgers thereby, cancelleing out each other. The two sides may be overcast
or under cast by the same amount. Example: an error of N2, 000 in the Sales account is
cancelled by an error of N2, 000 in motor expenses. Since the error occurred in both debit
and credit sides of different accounts the trial balance stills balanced. This can be corrected
by correcting the two ledgers separately at the same time in order not to create another error
- Complete Reversal of Entry: This type of error occurs when an item is posted to the
correct account but in the wrong side of the account. To correct the error in the account, the
figure is doubled to cancel the error in the reversal side first then the double entry is made in
the correct side. Example: Cash payment for wages N5, 500 was credited in wages account
instead of a debit entry.
The error above can be corrected by posting the figure N11,000 on the debit side of the wages
account to first cancel the error on the credit side and then maintain the correct figure on the
debit side.
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ACC 101 BASIC ACCOUNTING I UNITS : 2
Don Bell opens a computer business called Technology Consultants and completes the
following transactions in the months of April.
April 1: Bell invested N150, 000 and N24, 000 in office equipment in the company
April 2: The Company paid N7, 200 cash for twelve months rent for an office.
April 3: The Company made purchases of goods for N12, 000 from Rose ltd and bought
office equipment for N2, 400 from Mohammed, Both transactions on credit.
April 6: The Company sold goods to a client immediately receiving cash N2, 000
April 9: The Company made an N8, 000 sales for a client Ali, who will pay within 30 days.
April 13: the company paid N14, 400 cash to settle the account payable on created on April 3.
To Rose and Mohammed ltd respectively (amount paid separately)
April 19: The Company paid N6, 000 cash for insurance premium on a 12-month insurance
policy April 22: The Company received N6, 400 cash as Partial payment for the sales on
April 9.
April 25: Sales made to another client named People for N2, 640 on credit.
April 28: Bell withdrew N6, 200 cash from the company for personnel use.
April 29: The Company bought additional office equipment for N800 on credit from
Mohammed ltd
April 30: Paid utility bills for N700
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ACC 101 BASIC ACCOUNTING I UNITS : 2
Suggested Solution
In the books of Technology Consultants
Cash Book
Date Details fl Cash Date Details fl Cash
N N
Jan 1 Capital 150,000 Jan 2 Rent 86,400
6 Sales 2,000 13 Rose 12,000
22 Ali 6,400 13 Mohammed 2,400
19 Insurance 6,000
28 Drawing 6,200
30 Utility bill 700
30 Balance c/d 44,700
158,000 158,400
Feb 1 Balance b/d 44,700
Journal proper
Date Details DR CR
N N
Jan 1 Office equipment 24,000
Capital 24,000
Being personal equipment introduced into the business.
Purchase Journal
Date Details fl Amount Total
N N
Jan 3 Rose 12,000
DR. Purchase account (credit purchase) 12,000
Sale Journal
Date Details fl Amount Total
N N
Jan 9 Ali 8,000
Jan 25 People 2,640
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Capital account
N N
Cash 150,000
Balance c/d 174,000 Office equipment 24,000
174,000 174,000
Balance c/d 174,000
Sales account
N N
Cash 2,000
Balance c/d 12,640 Credit sales (SJ) 10,640
12,640 2,640
Balance b/d 12,640
Rent account
N N
Cash 86,400 Balance c/d 86,400
86,400 86,400
Balance b/d 86,400
Rose account
N N
Cash 12,000 Purchas (PJ) 12,000
12,000 12,000
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Mohammed account
N N
Cash 2,400 Office equipment 2,400
Balance c/d 800 Credit sales (SJ) 800
12,640 3,200
Balance b/d 800
Insurance account
N N
Cash 6,000 Balance c/d 6,000
6,000 6,000
Balance b/d 6,000
Drawings account
N N
Cash 6,200 Balance c/d 700
6,200 700
Balance b/d 6,200
Purchase account
N N
Rose (PJ) 12,000 Balance c/d 12,000
12,000 12,000
Balance b/d 12,000
People account
N N
Rose (SJ) 2,640 Balance c/d 2,640
2,640 2,640
Balance b/d 2,640
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Trial Balance
DR CR
N N
Capital 174,000
Sales 12,640
Debtor (Ali & People) 4,240
Mohammed (non-stock creditor) 800
Insurance 6,000
Drawings 6,200
Rent 86,400
Utility bill 700
Office equipment 27,200
Purchase 12,000
Cash 44,700
187,440 187,440
Mekiniya Enterprise runs business in general merchandise and has the following trial balance
for the year ended December 2011.
Trial Balance
Dr Cr
N N
Capital 92,000
Bank 7,500
Drawings 6,460
Cash in hand 2,880
Inventory (1st Jan. 2014.) 8,700
Loan 20,500
Building 80,000
Motor vehicle 40,000
Furniture and Fittings 24,000
Prov. for Dep. On motor vehicle 12,000
Prov. for Dep. On Furniture and Fittings 4,800
Provision for Doubtful debts 560
Sales/Purchases 68,700 124,000
Trade payables /Trade receivables 16,400 16,000
Bills Payable 160
Bills Receivable 2,300
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ACC 101 BASIC ACCOUNTING I UNITS : 2
Given the Closing inventory at N7, 600, you are required to prepare;
1. The Income Statement
2. The Statement of Financial Position as at 31st December 2011.
Suggested solution in
Mekiniya Enterprise
Income Statement for the Year Ended 31st December 2011
N N N
Sales 124,700
Less Returns inward (5,000)
119,000
Less Cost of Sales:
Opening inventory 8,700
Add: Purchases 68,700
Carriage inwards 2,500 71,200
79,900
Less: Returns Outward (4,280)
Cost of good available for sales 75,620
Less Closing inventory (7, 600)
68,020
Add wages 4,000
Cost of good of sales/cost of sales (72,020)
Gross profit 46,980
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Other Incomes:
Commissioned Received 6,000
Discount received 4,000
Rent received 13,700
Receipt from disposal of motor vehicle 2,000
72,680
Less Expenses:
Electricity 6,400
Motor repairs 12,500
Bad debt 300
Advertisement 5,840
Salaries 1,220
Entertainment 2,500
Discount allowed 800
Insurance 2,000 (31,560)
Net profit 41,120
Assets: N N
Non Current
Current assets:
Assets:
Stock 7,
NBV600
Trade Receivables 16,400
Less Provision for Bad debt (560) 15,840
Cash and cash equivalent 2,880
Cash at Bank 7,500
Bill Receivables 2,300
36,120
Non-Current assets:
Building 80,000
Motor van 28,000
Furniture and Fittings 19,200
127,200
Total assets 163,320
Financed by:
Capital 92,000
Add: Net Profit 41,120
133,120
Less Drawings (6,460)
Total equity 126,660
Total equity and liabilities 163,320
Workings;
Assets Schedule
Cost Accu- Dep NBV
N N N
Non Current assets:
Non-Current assets:
Building 80,000 - 80,000
NBV
Motor van 40,000
COST (12,000)
DEP 28,000
Furniture and Fittings 24,000 (4,800) 19,200
144,000 (16,800) 127,200
Note; from the above question the item provision for bad debt and provision for depreciation
were not carried to the trial balance because they have no balance as at the end of the period
Summary
In Study Session 3, you have learned about:
i. The accounting process starting from the source document to the journal to the ledger to the
trial balance and to the final accounting.
ii. About the meaning and the terms used in all accounting processes i.e. accounting cycle.
iii.Practical demonstrations of the process i.e. cash book. sales journal, purchases journal,
returns inward and returns outward journals, ledger entries, trial balance and the final
accounts
ITQ Question Study Session three
1. State the accounting process
2. ……….is considered a journal and at the same time a ledger
ITA Answer Study Session three
1. Source documents →Journal→ Ledgers→ Trial Balance → Final Accounts
2. Cashbook
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ACC 101 BASIC ACCOUNTING I UNITS : 2
You are required to write up the cash book for the month of February 2014 and post the
transactions to their corresponding ledger entries assuming all figures are in Naira.
v. Record the following transaction in the relevant columns of the petty cash book of ICAN , a
sole proprietor for the month of November 2011
N
Nov 1. Petty cashier received an Imprest amount of N2000
2 Paid for bus fare N200
4 Paid for postage N150
8 Paid for duplicating paper N300
12 Bought envelops N250
16 Paid for customers soft drinks N500
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ACC 101 BASIC ACCOUNTING I UNITS : 2
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Illustration:
Below is a trial balance as at close 31/09/2005 Brown enterprises a sole trader in Benin city.
N N
Inventory as at Jan 1st 2005 6000
Furniture and Fittings 9400
Rent Received 7000
Motor Van at Cost (N20,000) 16000
Rent Receivable 7500
Wages 3000
Provision for Depreciation Furniture & Fittings 1200
Motor Repairs 2800
Provision for Bad and Doubtful Debts 600
Electricity Bills 1600
Salaries 5000
Insurance 1200
Discount 2400 2800
Bank Balance 14000
Bad Debt 200
Returns 2900 2400
Rent Paid 8400
Cash Balance 14000
Trade payables & Trade receivables 36000 25000
Long Term Loan 16000
Drawings 6000
Capitals 4000 120000
Revenue & Purchases 52200 100000
Carriage Outward 6000
Mortgage Loan 6000
Land & Building 108000
293800 293800
Additional information;
1. Inventory at 31/9/2005 was valued at N8,500
2. Insurance paid covered the period to 31/12/2005
3. Of the carriage paid N1,200 is for carriage inward
You are required to prepare in accordance with IFRS terms the trading, profit and loss
account for the year ended 30th September, 2005 and a balance sheet as at that date.
Reference
Basic Accounting theory and practice 1 (2014) Dr. A. A. Malgwi, Mr. Victor O. Atabo
Financial Accounting Made Simple Robert Igben
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ACC 101 BASIC ACCOUNTING I UNITS : 2
Learning Outcomes
At the end of this session, you should be able to:
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ACC 101 BASIC ACCOUNTING I UNITS : 2
account by the collection fee it charges. Since these amounts are already on the bank statement, the
company must be certain that the amounts appear on the company's books in its cash account (debit
entry).
iv. Errors in the company's Cash account result from the company entering an incorrect amount,
entering a transaction that does not belong in the account, or omitting a transaction that should be in
the account. Since the company made these errors, the correction of the error will be either an increase
or a decrease (overcast and under cast) to the balance in the Cash account on the company's books.
v. Standing order: this is an instruction given by the owner of the account to the bank to make periodic
payment on his behalf. The bank will make the payment and debit the bank statement but no entry in
the cash book. Examples: Insurance and bills etc.
vi. Dishonoured Cheques: these are cheques presented for payment or deposited into a bank but were
rejected by the bank due to certain irregularities. The possible reasons why bank dishonours cheques
are:
a. Irregular and consistence in signature
b. Insufficient fund in the account
c. Alteration of the cheque and its writing
d. Disparity between amount in words and figure
e. Post-dated cheque i.e. must be within 6 months after its signature dated
f. Stale cheque are expired cheques i.e. beyond six (6) months after its signature dated Credit
vii. Transfer: These are cheques or cash received by the bank on behalf of the company, without
notifying the company until they receive the bank statement seeing it as a credit entry implying that it is
a payment on behalf of the owners.
viii. Direct Debit: This is an arrangement whereby a person’s account is debited with a sum of money at
the instance of a supplier with the account owner’s prior permission. Example - buying recharge card
using Automated Teller Machines to pay.
ix. Dividend: This is part of profit distributed to shareholders of an organization. This will be paid into the
account of the owner directly as a credit entry and will be absent on the debit side of the cashbook thus
debiting the company’s account.
x. Uncredited cheque: these are cheques received and entered on the debit side of the cash book but have
not been entered in the credit in the customer’s bank account as at the date of preparing the bank
statement. They are amounts already received and recorded by the company’s cash book, but are yet to
be recorded in the bank account by the bank. For example, a retail store deposits its cash receipts on 31st
September by 3:00 pm while the bank has already printed the bank statement by 10am same day. This
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ACC 101 BASIC ACCOUNTING I UNITS : 2
is a deposit in transit since the bank has not yet received the amount when it produced the bank
statement. Because deposits in transit are already included in the company's Cash account, there is no
need to adjust the company's records. However, deposits in transit (Uncredited cheque) are not yet on
the bank statement. Therefore, they need to be listed on the bank reconciliation as an increase to the
balance as per bank in order to report the true amount of cash.
xi. Unpresented Cheques: are cheques outstanding, cheques drawn or issued out in favour of somebody
but have not been drawn from the bank at the time of preparation of the bank statement though they
have been written and recorded (credited) in the company's Cash account, but not yet presented at the
bank for payment. Cheques written during the last few days of the month plus a few older cheques are
likely to be among the outstanding cheques. Because all cheques that have been written are
immediately recorded in the company's Cash account, there is no need to adjust the company's records
for the outstanding cheques. However, the outstanding cheques have not yet reached the bank and the
bank statement. Therefore, outstanding cheques are listed on the bank reconciliation as a decrease in the
balance as per bank.
xii. Bank errors are mistakes made by the bank. Bank errors could include the bank recording an
incorrect amount, entering an amount that does not belong on a company's bank statement, or omitting
an amount from a company's bank statement. The company should notify the bank of its errors.
Depending on the error, the correction could increase or decrease the balance shown on the bank
statement. (Since the company did not make the error, the company's records are not changed.)
xiii. The bank statement: this is a statement prepared at the bank to show all the customers
transactions for the month, showing how much was deposited at the bank by the customer,
what amount was withdrawn at the same time and the balance at each withdrawal and at each
deposit. The bank statement shows a column for what comes in, a column for what goes out
and a column for the balance remaining in the bank account.
You should note that the bank statement is the reversal of the cash book where you debit (Dr)
when you receive cash and credit (Cr) when you give out cash, but for the bank statement you
will be Debited (Dr) by the bank when you withdraw cash at the bank and Credited (Cr)
when you deposit in the bank.
xiv. The cashbook: this is a record of all cash transactions at the business and the bank. The cash
book serves as a journal to record since all cash transactions are first recorded and at the same
time it is a ledger because it is divided into two equal side the Dr side and the Credit side,
also it is the first leg entry of all cash transactions.
Using fictitious figures
Cash book
Date Particulars Fol Bank Date Particulars Fol Bank
N N
Jun 1 Balance .b/f 10,000 Jun.2 Brush B. 8,000
7 Uche 6,200 9 Ojochide 7,500
18 Baba 5,900 15 Bala 5,500
24 Okpanachi 6,200 21 Dan. 7,000
29 Ufedo 8,200 30 Abuja 7,200
31 Balance c/d 5,700 31 John 7,000
42,200 42,200
Balance b/d 5,700
i) It enables the business to satisfy that there is no fraud or error in its account with the bank.
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ACC 101 BASIC ACCOUNTING I UNITS : 2
ii) It enables the business to update its cash book with new information reflected in the bank
statement.
iii) It enables the business to confirm that the cash book was recorded correctly.
v) It is a deterrent to fraud as cashiers and accountants are aware that any fraudulent activity
shall be exposed during the bank reconciliation.
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ACC 101 BASIC ACCOUNTING I UNITS : 2
Adjusted cashbook
N N
b
Balance /d (DR) xxx Balance b/d (CR) xxx
Interest earned xxx Bank charges xxx
Add/less errors in cash book xxx Sms charges xxx
Dividend xxx Add /less error in cash book xxx
Standing orders xxx
Dishonoured cheque xxx
Balance c/d xxx
xxx xxx
Balance b/d xxx
The items necessary for the bank reconciliation statement are listed in the following format:
OR
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ACC 101 BASIC ACCOUNTING I UNITS : 2
Illustration
Using fictitious figures provided in the format for both cash book and statement of bank
account presented above we will the adjusted cash book and the bank reconciliation statement
for Goodness ltd for the month of 31STJune, 2013.
Cashbook
Date Particulars Fol Cash Date Particulars Fol Cash
N N
Jun 1 Balance .b/f 10,000 Jun.2 Brush B. 8,000
7 Uche 6,200 9 Ojochide 7,500
18 Baba 5,900 15 Bala 5,500
24 Okpanachi 6,200 21 Dan. 7,000
29 Ufedo 8,200 30 Abuja 7,200
31 Balance c/d 5,700 31 John 7,000
42,200 42,200
Balance b/d 5,700
Suggested Solution:
In the books of Goodness ltd
Adjusted Cash Book (Bank Column only) 31st June, 2013
N N
Balance b/f 5,700
Bank charges 5,050
Balance c/d 16,950 Ali (Dishonoured Cheques) 6,200
16,950 16,950
Balance b/d 16,950
N N
Balance as per adjusted cash book(Cr) (16,950)
Add: Unpresented Cheques:
Ojochide
7,500
Bala 5,500
John 7,000 20,000
3,050
Less: Uncredited Cheques:
Okpanachi 6,200
Ufedo 8,200 (14,400)
Balance as per Bank Statement (11,350)
Note: the reconciliation can be represented below using the second format.
Illustrations 2
On 31st December 2008, Jerry‘s cash book showed a debit balance of N29, 520. His bank
statement
showed a credited balance of N26, 500. The reason for the difference were as follows
a) A cheque for N1960 was received and entered in the cash book but was not recorded
in the bank statement
b) Un-presented cheques total N3740
c) The payments side of the cashbook had been under cast by N2000
d) Standing order for N1260 appearing in the bank statement yet to be posted in the cash
book
e) A bill of exchange of N1340 had matured and the bank had paid on Jerry‘s behalf
but it had not been recorded in the cashbook.
f) Dividends credited to his account of N1240 had not been recorded in the cash book
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ACC 101 BASIC ACCOUNTING I UNITS : 2
g) A withdrawal of N1440 by Jeremiah and other customer of the bank had been charged in
error to Jerry‘s account
You are required to:-
1. Identify and label the causes of these differences.
2. Prepare an updated cash book
3. Prepare the bank reconciliation statement as at 31st December 2008.
Suggested Solution:
1. The following are the causes of the differences
i Uncredited cheques
ii. Unpresented cheques
iii. Error by the account holder in his cash book
iv. Standing order
v. Direct credit
vi. Dividend received
vii Error by the bank.
2.
Jerry‘s book
Adjusted Cash Book
N N
Balance B/d 29,520 Correction of under cast 2,000
Dividend 1,240 Standing order 1,260
Bill of exchange 1,340
Balance c/d 26,160
30,760 30,760
Bal b/d 26,160
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ACC 101 BASIC ACCOUNTING I UNITS : 2
Note: when preparing the bank reconciliation statement and you are using balance as per
adjusted cash book first, you are trying to find the same balance as the bank statement has
and vice –versa.
N
Balance as per Bank Statement 26,500
less: Un-presented cheque (3,740)
22,760
Add: Un-credited cheque 1,960
24,720
Add: Bank Error 1,440
Balance as per Adjusted cash book 26,160
Summary
In Study Session 4, you have learned about:
i. The concept of bank statement, the cashbook and associated terminology
ii. Explaining the importance of bank reconciliation.
iii. Demonstrating the bank reconciliation statement by application to real life situation
ITQ Question Study Session 4
1. …………….. Is prepared to reconcile the difference between the cashbook
and the bank statement.
2. …………is the amount paid to suppliers but yet to be presented at the bank
for payment?
ITA Answer Study Session 4
3. Bank reconciliation
4. Unpresented cheque
b. Bank statement
c. Bank reconciliation statement
ii. Explain briefly the reasons why the bank statement and the cash book will always not agree
iii. What are the steps to the preparations of a bank reconciliation statement?
SAQ 1.2 (Testing Learning outcomes 2.2)
1. On 30th June 2011 the bank reconciliation of Benue stores & co showed that firms
account with one of its bankers has an overdrawn balance of N17,650. But the cash
book balance showed a much better position. Investigation revealed that the
discrepancy was due to the following items of transactions;
a. Cash lodgement on 30/6/2011 amounting to N14200 was not credited by the bank until
1/7/2011.
b. A half year payment of N500 to the Nigerian institute of managers was made under
a bank order. This amount had not entered in the cash book.
c. Unknown to Benue stores & Co, a debtor whose debt had been written off as
irrecoverable, had paid the sum of N1550 direct to the company‘s bank account and
the cash book is yet to reflect this.
d. A cheque of N850 paid into the bank had been dishonoured but no entry of
dishonour has been made in the cash book.
e. Also, Benue stores cheque settlement of one of its customers amounting to N2500
‘was returned for irregular signature. The cashbook is yet to show this.
f. A n o t h e r of the bank’s customers issued a cheque for N2500 on the bank but this
was erroneously debited to the firms account.
g. Commission and C.O.T charged by the bank to 30 June 2011 amount to N600
and N400 respectively, but not been entered in the cash book.
h. Cheques drawn before 3/6/2011 and not yet cleared by the bank were as follows;
Bama & Co, Bauchi Brokers and Yobe Ass for N800, N2900 and N8100
respectively.
i. C h e q u e s lodged on 29/6/2011 which has not been credited by the bank are N5000
from Adamu and N2500 from Okafor and sons.
You are required to
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2. The following is the cash book (bank column) of Fayemi for December 2011
N N
6-Dec J. Hall 155 1-Dec Bal b/d 3,726
20-Dec C. Walter 189 10-Dec D. Wood 234
31-Dec P. Miller 211 19-Dec M. Roberts 312
31-Dec Bal c/f 3,922 29-Dec P. Philips 200
4,472 4,472
Reference
A. A. Malgwi and V. O. Atabo (2014) Basic Accounting theory and practice 1 Comput Ray
Publishers Kaduna
R.O. Igben(2004) Financial Accounting Made Simple, 1st edition, ROI publishers, Lagos.
E. Ene and U Enjiwa Accounting Foundation volume 1 (2014).
GENERAL STUDY QUESTIONS
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6. Every transaction has an effect on assets and/or liabilities. Which of the following
such effects is correct?
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ACC 101 BASIC ACCOUNTING I UNITS : 2
Debt Credit
A Bank Bank
B Vehicles Bank
C Both of the above
D None of the above
9. If there is separate ledger account for ach debtor and creditor, which of the following
double-entries is correct?
Transaction Debt Credit
Asset of Stock
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ACC 101 BASIC ACCOUNTING I UNITS : 2
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15. What is the balance carried down on the following account on May 31?
May 1 sales $205 May 17 cash $300
A $395 credit
B $380 debt
C $395 debt
D None of the above
16. What would the balance brought down have been if P. Kelly’s account had been
balanced on May 19?
A $265 debt
B $265 credit
C $445 credit
D None of the above
18. Which of the following, on its own, could explain an increase in the debit balance
brought down on the bank account in a firm’s ledger?
A The firm receiving money from its debtors
B The purchase of asset by the firm
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Trail Balance
19. A trial balance…..
A Shows the financial position of a firm
B proves whether the underlying accounting records are correct
C lists all of the entries in the double-entry accounting records.
D is a list of all of the balances brought down in the double entry accounting
records
20. A trial balance is prepared in order to establish whether….
A the total of the debit balances brought down in the ledger equals that of the
credit balances brought down.
B the double-entry record for all transactions is correct
C the bank balance is correct
D the firm has earned a profit or incurred a loss.
21. The totals of a trial balance ….
A need not always agree, as there are sometimes legitimate reasons why they
should differ.
B should agree in all cases except when the trial balances is prepared at the end
of an accounting period
C should always agree.
D need not always agree, because the trial balance is not the same as a balance
sheet.
22. An error of omission arises when…
A either the debt or the credit entry for a particular transaction is recorded in the
wrong class of account.
B a transaction is not entered al all in the double-entry accounting records.
C the correct figure is entered in the double-entry accounting records, but in the
wrong perons’ account.
D two errors are made and one cancels out the other.
23. An error of commission arises when…
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A either the debit or credit entry for a particular transaction is recorded in the
wrong class of account.
B a transaction is omitted from the double-entry accounting record
C the correct figure is entered in the double-entry accounting records but in the
wrong person’s account
D None of the above
24. In the case of a newsagent’s shop, which of the following is an error of principle?
A The cost of purchasing a photocopier is entered in the purchase account
B a sale is not recorded in the double-entry accounting records
C a credit sale to A. Baker’s is inadvertently entered on the debit side of A.
Baker’s account.
D None of the above.
25. An error of original entry occurs when…
A either the debit or credit entry for a particular transaction is recorded in the
wrong class of account
B the correct figure is entered in the double-entry accounting records, but in the
person’s account
C an incorrect figure is entered on the correct sides of the correct ledger accounts
D None of the above.
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28. If a firm’s gross profit for the month of June is $35,000, its expenses for the same
period are $18,000 and its net profit is 17% of its sales, its cost of sales is:
A $52,000
B $53,000
C $65,000
D $100,000
29. If a sole trader’s capital at the beginning of a year was $100,000 and his net profit for
the year was $20,000, his capital at the end of the year…
A cannot be determined from the information given
B will be $80,000
C will be $100,000
D will be $120,000
Balance Sheets
30. A balance sheet is …
A a ledger account, proving that the accounting records ‘balance”.
B a statement showing the marketer value of a firm
C a listing, in a particular format, of the balances brought down remaining in the
double-entry accounts after the profit and loss account has been prepared.
D a statement showing the marker value of assets and liabilities
32. The correct heading for the balance sheet f J. Burton at the end of December 1995 is
“Balance Sheet of J. Burton ….
A for the period ended 31st December, 1995’
B for the ended 31st December, 1995’
C as at 31st December, 1995’
D as at December, 1995’
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The sole trader’s capital at the end of the accounting period is:
A $5,300
B $5,100
C $5,500
D $5,600
A Firm 1
B Firm 2
C Firm 3
D None of the above
40. A sole trader’s capital is equal to ….
A the total of his fixed assets plus current assets.
B his fixed assets
C the total of his net assets plus the capital he has introduced
D his net assets.
41. In the case of a firm selling exclusively on credit, which of the following shows its
various current assets listed in decreasing order of liquidity i.e. starting on the left
with the most liquid current asset and ending on the right with the least liquid one?
A Cash Stock Debtors Bank balance
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42. ON January 1st a sole trader had capital of $25,000. During the year his drawings
were $23,000 and at 31st December he had capital of $31,000. If he did not introduce
any new capital during the year, his net profit for the year was:
A $29,000
B $17,000
C $32,000
D $23,000
Aspects of trading and profit and loss accounts and balance sheet
A $6,200
B $6,800
C $7,000
D None of the above
46. The cost of bringing goods to a merchantable condition should be included in …
A the trading account
B the profit and loss account
C the balance sheet
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47. The following data relates to a firm which as been trading for several years.
1995 1994
Sales $1,000,000 $900,000
Cost of sales $500,000 $480,000
Closing stock $550,000 $150,000
Assuming that the firm’s cost of sales is calculated by reference to its purchases and
stock figures only, its purchases during 1995 were:
A $70,000
B $170,000
C $450,000
D $550,000
48. A sole trader incurred a loss of $10,000 during his most recent accounting period, yet
had more cash at the end of the period than he had at the beginning of it. Which of
the following, on its own, could explain this?
A An increase in his stock over the course of the period.
B $15,000 new capital introduced during the period
C The trader’s customers taking longer than normal to pay to him the amount
they owe.
D The purchase of fixed assets during the period
49. The correct way to record stock taken by the proprietor of a firm for his own personal
use, without him paying for it, is …
Account to Debit Account to Credit
A Drawing Sales
B Drawings Stock
C Sales Drawings
D Drawings Purchases
50. If stock withdrawn from a firm by its proprietor without him paying for it is not
recorded….
A bother net profit and closing stock will be overstated
B net profit will be understated and closing stock will be unaffected
C both net profit and closing stock will be understated
D
51. If, in the accounts of sole trader, $2,500 was debited to the purchases account, instead
of being debited to the drawings account …..
A gross profit would be overstated
B the total of expenses would be understated
C net profit would be understated
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52. Tom started business on January 1st, He bought fixed assets costing $53,000 and
stocks costing $6,600. He financed theses with a personal loan of $25,000 from his
brother and a business loan from a bank. On December 31st of the same year his net
assets were $37,200. His net profit for the year was $21,100. Tom’s drawings during
the year were:
A $1,300
B $8,900
C $16,100
D $18,500
Accounting Concepts
54. When preparing financial statements the going concern concept should be applied
only if the entity concerned …
A is not anticipated to incur losses in the foreseeable future
B will never be wound up
C is expected to continue in operational existence for the foreseeable future at a
level of activity not significantly less than the current level of activity
D is not expected to be able to continue operating
55. The going concern concept mean that, when preparing accounts ..
A profits should not be anticipated and losses should be provided for as soon as
foreseen
B like items should be treated in a consistent way
C unless there is specific information to the contrary, the firm for which the
accounts are being prepared should be assumed to continue in operational
existence for the foreseeable future at a level of activity not significantly less
than the current level of activity
D revenues and costs are recognized as they are earned or incurred, not as money
is received or paid.
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C the financial affairs of a firm and its owner(s) are always kept separate for the
purpose of preparing accounts.
D None of the above
62. Which of the following is one of the ‘fundamental accounting concept’ referred to in
SSAP 2?
A The materiality concept
B The business entity concept
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70. Cash lodged in a bank should be recorded in the Cash book as:
Column to Debit Column to Credit
A Cash Bank
B Bank Cash
C Cash Cash
D Bank Bank
34. B
35. C
36. B
37. D
38. B
39. B
40. D
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