Principles Of Accounts 2009 Jamb Examination

Financial accounting is considered the oldest branch of accounting. Its origins can be traced back to ancient civilisations where it was necessary to keep records of stewardship. The modern double-entry system, which is the foundation of financial accounting, was formalised by Luca Pacioli in 1494. Other branches like cost accounting and management accounting developed much later, primarily during the Industrial Revolution, to meet the internal needs of businesses for efficiency and decision-making. Petroleum accounting is a specialised modern field dealing with the oil and gas industry.

The accruals convention (often associated with the matching principle) dictates that revenue and costs are recognised as they are earned or incurred, not as money is received or paid. To determine the true performance or profit of a business for a specific period, all expenses incurred in generating the revenue for that period must be matched against that revenue. This ensures that the financial statements reflect the actual economic activity of the business during the accounting period rather than just cash flow movements.

Bookkeeping is the systematic recording of financial transactions. Every entry in the books of accounts must be supported by evidence that the transaction actually occurred. This evidence is provided by source documents, such as receipts, invoices, vouchers, credit notes, and debit notes. These documents serve as the primary input for the bookkeeping process. Ledgers are where the transactions are eventually posted, minutes of meetings record decisions rather than financial transactions, and intuitive reasoning has no place in the objective recording of accounting data.

In this transaction, the purchase of recharge cards for business calls represents an expense for the business, specifically under the category of telephone or communication expenses. According to the double-entry system, expenses are increased by debiting the expense account. Since Musa is a 'prepaid customer' and bought the cards, it is implied that cash was paid at the point of purchase. The total expenditure is:\[ \text{N1,500 (XYZ)} + \text{N2,000 (KLM)} = \text{N3,500} \]The journal entry requires a debit to the Telephone Expense account to record the cost and a credit to the Cash account to record the outflow of money.

To find the total debit for the trial balance, we identify all items that carry a debit balance. In accounting, Assets and Expenses have debit balances, while Liabilities, Equity (Capital), and Revenue have credit balances.

The debit items from the list are:

Debtors (Asset): N495,000
Motor vehicle (Asset): N870,000
Prepayment (Asset): N500,000
Bills receivable (Asset): N505,000
Furniture (Asset): N150,000

Calculation of the total debit:

Total Debit = 495,000 + 870,000 + 500,000 + 505,000 + 150,000

Total Debit = N2,520,000

Note that Capital and Creditors are credit balance items and are excluded from this total.

When a business owner withdraws money from the business for personal use, this is known as 'Drawings'. According to the accounting equation:\[ \text{Assets} = \text{Capital} + \text{Liabilities} \]Taking money out of the bank account reduces the business assets (Bank/Cash). Simultaneously, drawings reduce the owner's equity or claim on the business, which means Capital decreases. Therefore, the dual effect of this transaction is a reduction in both the asset side and the capital side of the balance sheet.

Current liabilities are obligations that a business is expected to settle within one year or its normal operating cycle. From the provided list:
i. Operating machines (Non-current asset)
ii. Furniture (Non-current asset)
iii. Fixtures and fitting (Non-current asset)
iv. Loan from friends (Usually treated as a short-term liability/current liability unless specified as long-term)
v. Creditors (Current liability)

Both loans from friends (short-term) and creditors represent money owed by the business to external parties that are typically due in the short term. Therefore, items iv and v fall under the category of current liabilities.

Fixed assets, now commonly referred to as non-current assets, are long-term tangible assets used in the operations of a business to generate income and are not intended for immediate resale. From the list provided:
i. Operating machines are used in production (Fixed Asset).
ii. Furniture is used for office operations (Fixed Asset).
iii. Fixtures and fitting are installed items used long-term (Fixed Asset).
iv. Loan from friends is a liability.
v. Creditors is a liability.

Therefore, the combination of i, ii, and iii represents the fixed assets of the business.

Under the imprest system, the petty cashier is reimbursed at the end of a period to restore the cash to the 'float' (the fixed starting amount). However, if the float itself is increased, the reimbursement must cover both the expenses incurred and the incremental increase in the float.
First, let's calculate the cash remaining after period 2:
Initial Float = N1,000
Expenses in Period 1 = N780
Reimbursement after Period 1 (to restore to N1,000) = N780
Expenses in Period 2 = N840

At the end of Period 2, before reimbursement, the cash on hand is:\[ \text{Cash on hand} = \text{Float} - \text{Expenses} = 1,000 - 840 = 160 \]The business wants to increase the float to N1,200. The amount to be received is the difference between the new desired float and the current cash on hand:\[ \text{Amount to receive} = \text{New Float} - \text{Cash on hand} \]\[ \text{Amount to receive} = 1,200 - 160 = 1,040 \]Therefore, the cashier receives N1,040 to reach the new float level.

The balance of cash held by the petty cashier is the difference between the total cash received (the float) and the total amount spent (disbursements) during that specific period.
Based on the data for Period 1:
Cash received by petty cashier (Float) = N1,000
Cash paid out for expenses = N780

The balance is calculated as:\[ \text{Balance} = \text{Cash Received} - \text{Cash Paid Out} \]\[ \text{Balance} = 1,000 - 780 = 220 \]Thus, at the end of period 1, the petty cashier has N220 remaining before any reimbursement occurs.