Principles Of Accounts 2022 Jamb Examination

In accounting, assets in the Statement of Financial Position (Balance Sheet) are usually arranged in order of 'liquidity' (the ease with which they can be converted into cash). Among current assets, 'Stock' (inventory) is the least liquid because it must first be sold. 'Debtors' (accounts receivable) are next, as they represent sales already made that just need to be collected. 'Bank' and 'Cash' are the most liquid forms of assets.
Therefore, the standard sequence starting from the least liquid to the most liquid is Stock, Debtors, Bank, and finally Cash. This helps users of financial statements understand the short-term solvency of the business.

The Profit and Loss Account follows the nominal account rule: 'Debit all expenses and losses, Credit all incomes and gains'. Expenses like advertising, wages, and bank charges represent costs incurred by the business and are therefore debited. 'Dividend received' is an income generated from investments held by the business in other companies. As an inflow of economic benefit, it is recorded on the credit side of the Profit and Loss Account, increasing the net profit for the period.

Authorised share capital (also known as nominal or registered capital) is the maximum amount of share capital that a company is legally permitted to issue to its shareholders, as stated in its Memorandum of Association. While the prompt asks 'when they are...', contextually, shares are 'authorised' by the legal documents of the company at incorporation. However, in many contexts, this term is used interchangeably with the 'Nominal' value registered with the corporate affairs commission. Looking at the options, none perfectly define the 'act' of authorisation, but in the lifecycle of capital, authorisation comes before issuance, calling up, or paying up. The most appropriate technical answer is that they are the shares the company is registered to issue. If we must select from the provided options, it relates to the legal limit established for the company's existence.

The 'Going Concern' concept is one of the most fundamental assumptions in accounting. it assumes that the business entity will continue its operations for an indefinite period and has neither the intention nor the necessity to liquidate or significantly curtail its scale of operations. This concept justifies the practice of valuing assets like land at cost rather than market liquidation value, and it allows for the depreciation of fixed assets over their useful lives rather than recording their full cost as an immediate expense.

Solvency refers to a company's ability to meet its financial obligations. Short-term solvency, in particular, measures the ability to pay debts that are due within one year using current assets. The 'Current Ratio' is the standard measure for this, calculated by dividing total current assets by total current liabilities. While the 'Acid Test' (Quick Ratio) is a more stringent measure of short-term solvency (excluding stock), the 'Current Ratio' is the primary and most comprehensive tool for general short-term solvency analysis.

The trading account is designed to show the gross profit or loss of a business by matching the net sales against the cost of goods sold. Carriage inwards refers to the transportation costs incurred when bringing raw materials or goods into the business premises for production or resale. According to the historical cost and matching principles, these costs are considered part of the direct cost of purchases and must be added to the purchase price in the trading account. In contrast, rent, discount allowed, and carriage outwards (the cost of delivering goods to customers) are operating expenses and are therefore charged to the profit and loss account.

In departmental accounting, expenses are apportioned based on the logic of what drives the cost. Turnover (sales) is a logical basis for expenses that vary directly with the volume of sales, such as sales commission, discounts allowed to customers, and carriage outwards. Rent, however, is a fixed cost related to the physical space occupied by a department. It is typically apportioned based on the floor area or the square footage used by each department rather than the volume of sales they generate.

The purchases ledger control account is a summary account in the general ledger that mirrors the activity in the individual creditors' accounts found in the purchases ledger. It records the total amount the business owes to its credit suppliers. Because it consolidates the balances of all trade creditors into a single total, it is widely referred to as the 'Creditors Control Account' or the 'Total Creditors Account'. This account allows for the verification of the accuracy of the subsidiary ledger and provides the total figure for trade payables for the balance sheet.

Dissolution refers to the formal termination of a partnership agreement and the subsequent winding up of the business's affairs. When a firm undergoes dissolution, it ceases all normal operations, sells off its assets, settles its liabilities with the proceeds, and distributes any remaining cash to the partners. While 'Realization' is the specific process or account used to calculate the profit or loss on the sale of those assets during this period, the overall state and legal process of the firm stopping its operation is known as dissolution.

The Income and Expenditure Account is the financial statement used by non-profit organisations (like clubs and charities) to summarize their revenue and expenses for an accounting period. It is prepared on an accrual basis and serves exactly the same purpose as the Profit and Loss Account of a sole trader or commercial firm. Both accounts match current income against current expenditure to determine the net result of operations—referred to as 'Surplus' or 'Deficit' in a non-profit and 'Net Profit' or 'Net Loss' for a sole trader.