Principles Of Accounts 2025 Jamb Examination

The 'nominal value' (or par value) is the face value of a share as stated in the company's memorandum. If a company offers its shares to the public at a price below this face value, the difference is referred to as an 'issue at a discount'. For example, if a share with a nominal value of ₦1.00 is issued for ₦0.90, it is issued at a 10% discount. Conversely, issuing above nominal value is an issue at a 'premium', and issuing at exactly the nominal value is an issue at 'par'.

The Debtors Control Account (Sales Ledger Control Account) records the total amount owed by customers. To reduce this balance, we credit the account with items like Cash Received, Sales Returns, Discounts Allowed, and Bad Debts written off. 'Provision for bad debt', however, is an estimate of potential future losses and is maintained in a separate valuation account; it is never entered into the Debtors Control Account itself. The control account only records actual transactions that change the legal amount owed by the debtors.

Capital is affected by transactions that involve the owner's personal interest or the profitability of the business. 'Drawings by cheque' represents the owner taking value out of the business for personal use, which directly reduces the owner's capital. Paying wages by cash also affects capital indirectly because it is an expense that reduces net profit, and profit is eventually added to capital. However, 'Drawings' is the most direct answer involving a change in the equity balance regardless of the trading outcome. Purchasing equipment or goods by cheque merely changes the composition of assets (e.g., Cash decreases while Equipment or Stock increases) without changing the total capital directly at the point of purchase.

The Sales Ledger Control Account acts as a summary of all individual accounts in the Sales Ledger. Its closing balance represents the total amount currently owed to the business by all its credit customers combined. This figure is essentially the 'Trade Debtors' (or Trade Receivables) balance that will be reported as a current asset in the Statement of Financial Position (Balance Sheet). While credit sales are recorded in this account, they are only one component; the final balance accounts for payments, returns, and discounts as well.

A source document is the original written evidence of a financial transaction, such as an invoice, credit note, or debit note. These provide the details needed to make entries in the books of prime entry. A 'bank note' (paper currency) is a medium of exchange (money) rather than a document describing a specific transaction between two parties. While you might receive a receipt for a transaction involving bank notes, the bank note itself is not an accounting source document.

A delivery van is used for the distribution of finished goods to customers, which is a selling and distribution expense. All operational expenses related to the general running of the business and the sale of goods—including depreciation of non-factory assets—are charged to the Profit and Loss Account. If the depreciation were on factory machinery, it would be charged to the Manufacturing Account, but as a delivery van is an administrative or selling asset, its wear and tear reduces the net profit for the period.

The Sales Day Book (or Sales Journal) is a book of original entry specifically designed to record 'credit sales of stock' (goods intended for resale). Cash sales are recorded directly in the Cash Book, and sales of fixed assets (whether for cash or credit) are recorded in the Cash Book or the General Journal respectively. The Sales Day Book ensures that all credit transactions with customers are captured before being posted to the individual debtors' accounts in the sales ledger.

Capital expenditure refers to the funds used by a company to acquire, upgrade, and maintain physical assets such as property, plants, buildings, technology, or equipment (fixed assets). These expenditures are not fully expensed in the year they are purchased but are capitalized on the balance sheet and depreciated over their useful life. In contrast, money spent on goods for resale or day-to-day running costs is classified as revenue expenditure.

Real accounts are ledger accounts relating to assets (tangible or intangible) that stay with the business and do not close at the end of the year. Motor Vehicles, Buildings, and Furniture are all tangible real accounts. Patents are an intangible asset, but they are still classified as a real account in traditional accounting. However, if we evaluate the context of standard 'Real, Personal, and Nominal' classifications, all four options listed here (Patent, Vehicle, Building, Furniture) are technically assets and thus 'Real' accounts. If the question implies a distinction, it is often poorly framed; but usually, all asset accounts are real accounts. If forced to choose the 'least' real in a traditional sense, some might mistakenly point to intangibles, but they are all real accounts.

A 'Provision for Doubtful Debts' is an estimate of money that may not be collected from debtors. When this provision is increased, it is treated as an expense because the business expects to lose more money. Conversely, if the provision is decreased (because the collection outlook has improved), the reduction is treated as 'income' or a gain for the period. This 'write-back' of the provision is credited to the Profit and Loss Account to increase the reported net profit.