Principles Of Accounts 2022 Jamb Examination

A 'contra entry' occurs when a transaction is recorded in two different columns of the same book, specifically the cash book, and affects both cash and bank accounts. In this scenario, Bello is taking money out of the bank (Asset decrease) and bringing it into the office cash till (Asset increase). Because the cash book serves as the ledger for both cash and bank, the entire double entry is completed within this single book. To record this, the Cash column is debited (receiving value) and the Bank column is credited (giving value). The entry is marked with a 'C' in the folio column to indicate that it does not need to be posted to a separate ledger.

In accounting, the folio column in a journal or ledger is used for cross-referencing. When a transaction is recorded in the General Journal (the book of prime entry), the folio column remains blank until the entry is 'posted' to the relevant accounts in the General Ledger. Once posted, the folio column in the journal is used to record the page number or account code of the ledger where the entry was sent. This creates an audit trail, allowing an accountant to track where the 'amount of money posted' can be found in the final accounts. Therefore, it serves as a reference point for the movement of financial data from prime entry to the ledger.

Interest on drawings is a charge levied by the partnership on partners for the money they have withdrawn from the business for personal use. It acts as an income to the partnership and is credited to the Profit and Loss Appropriation Account. The calculation is based on the amount withdrawn by the specific partner and the agreed interest rate specified in the partnership deed.
To find the interest on Dairo's drawings:\[\text{Interest} = \text{Dairo's Drawings} \times \text{Interest Rate}\]\[\text{Interest} = 12,000 \times 10\%\]\[\text{Interest} = 12,000 \times 0.10 = \text{₦}1,200\]

To find Segun's share of the residual profit, prepare a Profit and Loss Appropriation Account.

1. Net Profit = ₦36,000

2. Add Interest on Drawings:

   • Dairo (10% of 12,000) = ₦1,200

   • Segun (10% of 18,000) = ₦1,800
     Total Profit Available = 36,000 + 3,000 = ₦39,000

3. Less Interest on Capital:

   • Dairo (5% of 120,000) = ₦6,000

   • Segun (5% of 60,000) = ₦3,000

4. Less Salary:

   • Segun = ₦10,000

5. Divisible Profit = 39,000 − (6,000 + 3,000 + 10,000) = 39,000 − 19,000 = ₦20,000

6. Segun's Share (ratio 2:3, Segun gets 3/5) = 3/5 × 20,000 = 12,000

Segun's share of the residual profit is ₦12,000.

Under the single-entry system or incomplete records, a trader does not maintain a full set of double-entry books. To determine the financial position and specifically the opening or closing capital, the trader must prepare a 'Statement of Affairs'. This document is similar to a Balance Sheet as it lists all assets and liabilities at a specific date. The difference between the total assets and total liabilities is then assumed to be the capital. The accounting equation used here is: \[\text{Capital} = \text{Total Assets} - \text{Total Liabilities}\] This is a vital step in calculating profit by comparing the opening capital with the closing capital.

When individuals form a partnership without a formal written agreement or 'Partnership Deed', the provisions of the Partnership Act 1890 apply. One of the key rules under this Act is that any partner who provides a loan to the firm, beyond the amount of capital they agreed to subscribe, is entitled to interest on that loan. The statutory rate fixed by the Act is 5% per annum. This interest is treated as a charge against profit, meaning it must be paid out of the business's revenue before the net profit is determined, regardless of whether the firm makes a profit or a loss.

The General Journal (or Journal Proper) is a book of prime entry used to record transactions that do not fit into specific books like the sales or purchases day books. The standard format of a journal entry includes columns for the Date, Particulars (to describe the accounts and transaction), Folio (for cross-referencing), Debit amount, and Credit amount. A 'discount' column is a specialized feature found in the three-column cash book, used to record cash discounts at the time of payment or receipt. Since the journal is used for adjusting entries, opening entries, and non-cash asset transfers, it does not have a dedicated discount column as a standard heading.

Reserve capital, also known as reserved capital, is a portion of the 'uncalled' share capital that a company's shareholders decide, by special resolution, not to call up except in the event of the company being wound up or liquidated. This serves as a safety net for creditors, providing a pool of funds that can only be accessed to settle debts when the company is closing down. Unlike issued, called-up, or paid-up capital, which are part of the active working capital of the business during its normal operations, reserve capital remains dormant until the final stages of the company's existence.

A Manufacturing Account is prepared to determine the cost of producing goods. It includes all 'Prime Costs' (raw materials, direct labour/factory wages, and direct expenses) and factory overheads. Distribution expenses, such as the cost of transporting finished goods to customers or marketing costs, occur after the production process is complete. These are classified as selling and distribution expenses and are charged to the Profit and Loss Account to determine the net profit, rather than to the Manufacturing Account which focuses strictly on the factory floor activities.

In public sector and government accounting, a budget is divided into different 'Heads' and 'Sub-heads' of expenditure. Virement is the administrative process that allows for the movement of surplus funds from one budget head (where they are not needed) to another head (where there is a shortfall), provided both heads fall under the same ministry or department. This provides flexibility in financial management, allowing the organisation to meet urgent needs without seeking a completely new appropriation from the legislature, as long as the total approved budget for that department is not exceeded.