Principles Of Accounts 2019 Jamb Examination

The business entity concept (or separate entity concept) is a fundamental accounting principle which states that the activities of a business must be kept separate and distinct from the activities of its owners and all other economic entities. This means that even in a sole proprietorship, where the owner is legally responsible for the business, the accounting records must treat the owner's personal transactions as entirely separate from the business's financial transactions. This allows for the accurate measurement of the performance and financial position of the business unit itself.

Accounting bases refer to the timing of when revenues and expenses are recognised in the financial statements. The two primary bases are:
1. Cash Basis: Transactions are recorded only when cash is actually received or paid.
2. Accrual Basis: Transactions are recorded when they occur, regardless of when the cash is exchanged. This follows the matching principle, ensuring that revenue and the expenses incurred to generate that revenue are reported in the same period.

To find the amount of drawings, we use the expanded accounting equation for capital. The relationship between opening capital, additional capital, profit, drawings, and closing capital is expressed as follows:

Closing Capital = Opening Capital + Additional Capital + Net Profit − Drawings

Substituting the given values into the formula:

12,000 = 8,000 + 4,000 + 1,500 − Drawings
12,000 = 13,500 − Drawings
Drawings = 13,500 − 12,000
Drawings = 1,500

Therefore, the owner withdrew ₦1,500 from the business during the period.

A bank statement is a document sent by the bank to the account holder, showing all transactions and the resulting balance. Its primary purpose is to serve as an external verification of the business's records. It allows the accountant to perform a bank reconciliation, which helps in identifying errors in the cash book and uncovering items like bank charges or standing orders that need to be used to update the cash book. However, the bank statement itself is not a tool used by the account holder to 'debit' an account; debiting or crediting is an internal accounting action taken by the business or the bank based on actual transactions.

The International Accounting Standards Board (IASB) is an independent, private-sector body that develops and approves International Financial Reporting Standards (IFRS). Based in London, its goal is to provide a single set of high-quality, understandable, enforceable, and globally accepted accounting standards. While the Standards Advisory Council and Standing Interpretations Committee play supporting roles within the framework, the IASB is the specific body responsible for the issuance of the standards themselves.

The method described is the Weighted Average Price (WAP) method. Under this system, the cost of inventory is determined by calculating the average cost of all similar items available for sale during the period. The formula involves taking the total cost of goods in stock and dividing it by the total number of units in stock. Unlike First-In, First-Out (FIFO) or Last-In, First-Out (LIFO) which track specific batches, WAP smoothes out price fluctuations by creating a single average rate for issues to production or sales.

While both Joint Ventures and Partnerships involve collaboration between two or more parties to make a profit and define specific rights and duties for members, they differ significantly in their duration and scope. A Partnership is generally an ongoing business relationship intended to last indefinitely. In contrast, a Joint Venture is specifically formed for a single, defined project or a limited 'specific venture' and is usually dissolved once that particular objective is achieved.

A credit transaction occurs when goods or services are exchanged with the agreement that payment will be made at a later, specified time. This 'deferment of settlement' allows businesses to acquire inventory or assets immediately to generate revenue before the actual cash outflow is required. In accounting, these transactions create accounts receivable for the seller and accounts payable for the buyer.

This transaction involves two asset accounts: Motor Vehicle and Bank. According to the double-entry principle, when an asset is acquired, its account is debited, representing an increase. Conversely, when an asset is used to pay for something, its account is credited, representing a decrease.\[ \text{Debit: Motor Vehicle (Asset Increase)} \]\[ \text{Credit: Bank (Asset Decrease)} \]Therefore, the primary effect on the Motor Vehicle account is an increase in the total value of the firm's non-current assets.

When a proprietor takes cash out of the business for personal use, it is termed 'Drawings'. This reduces the owner's equity in the business as well as the business's cash asset. To record this, the Drawings account is debited (representing a reduction in equity/capital) and the Cash account is credited (representing the decrease in the asset cash).