Principles Of Accounts 2020 Jamb Examination

The fundamental accounting equation is expressed as:\[\text{Assets} = \text{Liabilities} + \text{Equity}\]In this framework, liabilities represent the obligations or debts that a business owes to external parties. Accounts payable refers specifically to the money a company owes to its suppliers or creditors for goods or services purchased on credit. Because it represents a legal obligation to pay cash in the future, it is classified as a current liability. Assets represent what the company owns, while equity and capital represent the owner's residual interest in those assets. Therefore, accounts payable must be categorised under liabilities to maintain the balance of the accounting equation.

Under an imprest system, the petty cashier is provided with a fixed amount of money known as the 'float' or 'imprest sum' (in this case, ₦500). At the end of each period, the petty cashier is reimbursed with the exact amount spent to restore the balance back to the original float.

In Period 2, we look at the actual expenditure incurred during that specific period:\[ \text{Expenditure in Period 2} = \text{Writing materials} = \text{₦350}\] To restore the cash on hand to the required float of ₦500 at the start of the next period, the reimbursement must equal the total amount spent during Period 2. Thus, the amount to be received is ₦350. This ensures that the petty cash fund remains constant at the agreed-upon level.

The balance of cash at any given time is calculated by subtracting the total cash outflows from the total cash inflows for that period. For Period 1, the calculation is as follows:
\[ \text{Initial Advance} = \text{₦500}\] \[ \text{Total Expenses (Period 1)} = \text{Stamp} + \text{Newspaper}\] \[ \text{Total Expenses (Period 1)} = 200 + 250 = \text{₦450}\] \[ \text{Closing Balance} = \text{Initial Advance} - \text{Total Expenses}\] \[ \text{Closing Balance} = 500 - 450 = \text{₦50}\]
At the end of Period 1, before any reimbursement (reimbursement happens at the start of Period 2), the cashier is left with the remainder of the original 500 naira.

Cash accounting is a system where transactions are only recorded when cash changes hands—revenue is recorded when received and expenses when paid. In contrast, accrual accounting is based on the matching principle and the realization concept, meaning transactions are recorded in the period they occur, regardless of when the cash is exchanged. Because accrual accounting records sales on credit and purchases on credit at the time the transaction happens, it naturally gives rise to debtors (customers who owe money for sales made) and creditors (suppliers to whom money is owed for purchases made). While cash is recorded in both systems, it is the systematic recognition of these non-cash obligations and rights (debtors and creditors) that fundamental distinguishes the accrual method from the cash method.

In the context of non-profit organisations or clubs, a 'subscription accrued' (also known as subscription in arrears) refers to membership fees that are due but have not yet been paid by members at the end of the accounting period. According to the accrual concept of accounting, this represents income that has been earned by the organisation but not yet received in cash. Because this amount is expected to be collected within the next twelve months and represents a resource controlled by the entity as a result of past events, it is classified as a current asset. It is essentially equivalent to a 'debtor' in a commercial trading concern.

Bookkeeping is the systematic process of recording, classifying, and organising the financial transactions of a business in a consistent manner. One of its primary objectives is to ensure that a complete and chronological history of all monetary activities is maintained. Unlike accounting, which involves interpreting and analyzing data for future decision-making (making it more 'futuristic'), bookkeeping is primarily concerned with the 'historical' aspect—capturing past events as they occur. By recording these transactions in journals and ledgers, bookkeeping provides a permanent and reliable evidence of the firm's financial history, which is essential for audits, tax purposes, and the preparation of final financial statements.

To find the capital (Equity) of the business, we apply the fundamental accounting equation, which states that total assets must equal the sum of total liabilities and equity.\[ \text{Total Assets} = \text{Total Liabilities} + \text{Capital}\] First, we calculate the total assets:\[ \text{Total Assets} = \text{Fixed Assets} + \text{Current Assets}\] \[ \text{Total Assets} = 4,000 + 2,000 = \text{₦6,000}\] Next, we calculate total liabilities by adding current liabilities and the long-term loan:\[ \text{Total Liabilities} = \text{Current Liabilities} + \text{Long-term Loan}\] \[ \text{Total Liabilities} = 1,200 + 2,000 = \text{₦3,200}\] Now, we solve for Capital:\[ \text{Capital} = \text{Total Assets} - \text{Total Liabilities}\] \[ \text{Capital} = 6,000 - 3,200 = \text{₦2,800}\] = 2800 + 200 = 3000

Net Working Capital is a financial metric that represents the operating liquidity of a business. It measures the ability of a company to cover its short-term obligations with its short-term assets. The formula to calculate Net Working Capital is as follows:\[\text{Net Working Capital} = \text{Current Assets} - \text{Current Liabilities}\]From the data provided:\[\text{Current Assets} = \text{₦}2,000\]\[\text{Current Liabilities} = \text{₦}1,200\]Performing the subtraction:\[\text{Net Working Capital} = 2,000 - 1,200\]\[\text{Net Working Capital} = \text{₦}800\]Fixed assets and long-term loans are excluded from this calculation because they represent long-term financial structures rather than short-term operational liquidity.

A discrepancy occurs between the bank statement and the company's cash book when transactions are recorded in one but not yet in the other. When we say the bank statement balance is 'overstated' relative to the cash book, we mean the bank shows more money than the cash book does. Direct payments (also known as credit transfers) occur when a third party pays money directly into the company's bank account. Since the bank records this immediately but the company may not be aware of it until they receive the statement, the bank balance will temporarily be higher (overstated) compared to the cash book balance. In contrast, commission paid, interest charges, or direct withdrawals would make the bank balance lower (understated) compared to the cash book until recorded by the company.

A journal, often called the book of original entry, is used to record transactions in chronological order before they are posted to the ledger. The standard format of a general journal consists of five specific columns designed to capture all necessary data for a double-entry system. These columns are:
1. Date: To record when the transaction occurred.
2. Particulars: To describe the accounts being debited and credited, including a brief narration.
3. Folio: To provide a reference link to the ledger page where the entry is posted.
4. Debit: To record the amount to be debited.
5. Credit: To record the amount to be credited.
Because it requires both a debit and a credit column to ensure the books remain balanced, the five-column structure is the defining characteristic of the general journal.