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Financial Accounting (Objective & Essay) Thursday, 10th August.
Financial Accounting (Objective, Theory & Practice)
10:00am – 1:50pm
NECO Financial Accounting (Objective & Essay)OBJ/Theory Paper is Out
Bank Reconciliation Statement refers to a statement that reconciles the discrepancies between the balance reflected in a company’s bank statement and the balance shown in the company’s cash book at a given point in time. It is essential for businesses to reconcile their records with the bank’s records to ensure accuracy and completeness of financial statements.
(PICK ANY FIVE)
(i) Outstanding checks: A check may be recorded as paid in the cash book, however, it may not have been cleared in the bank statement.
(ii) Deposited/Un-deposited Funds: Funds from a customer can be deposited into the account but may not be recorded in the cash book. Similarly, funds from the businesses can be withdrawn from the account but may not be recorded in the cash book.
(iii) Un-recorded Bank Charges: Bank charges such as fees or service fees may not be recorded in the cash book.
(iv) Un-cleared Check: A check may be recorded as paid in the bank statement, however, it may not be recorded in the cash book.
(v) Bank Errors: Bank errors made by the bank or its staff can lead to discrepancies between the bank statement balance and the cash book balance.
(vi) Interest Earned: Interest earned from a bank account may not be recorded in the cash book.
(vii) Unrecorded Deposits: Deposits from customers may not be recorded in the cash book.
(viii) Unrecorded Loans: Loans taken from the bank may not be recorded in the cash book.
(i) Error of principle: This type of error occurs when a transaction is recorded against the wrong account or in violation of accounting principles. For example, if a company records the purchase of inventory as an expense instead of an asset, it would be an error of principle. This error affects the accuracy of financial statements and requires correction to reflect the proper accounting treatment.
(ii) Error of compensation: An error of compensation occurs when two or more errors are made, but their cumulative effect cancels each other out. As a result, the overall impact on the financial statements is not significant. For instance, if an expense is overstated by $500 and a revenue is overstated by $500, these errors compensate each other, leading to no net effect on the financial statements.
(iii) Error of omission: This error happens when a transaction or entry is completely left out or omitted from the accounting records. It could be an oversight or mistake in not recording a transaction. For example, if a company fails to record a cash receipt from a customer, it would be an error of omission. This error requires identification and correction to ensure accurate financial reporting.
(iv) Error of commission: An error of commission occurs when an entry is recorded incorrectly due to a mistake or misinterpretation. It could involve recording the wrong amount, using the wrong account, or making a calculation error. For instance, if an invoice amount of $500 is recorded as $50, it would be an error of commission. This error needs to be identified and rectified to ensure accurate financial records.
(v) Error of complete reversal of entry: This type of error occurs when an entry is recorded with the opposite effect or direction than intended. For example, if a payment received from a customer is recorded as an accounts payable instead of a cash receipt, it would be an error of complete reversal of entry.
(PICK ANY THREE)
(i)Donations and Contributions: Donations from individuals, corporations, foundations, and other entities form a significant source of income for non-profits. These funds can be unrestricted or designated for specific purposes.
(ii)Grants: Non-profits often receive grants from government agencies, private foundations, and international organizations to fund specific projects or initiatives. Grants can cover a wide range of areas, from education to healthcare to social services.
(iii)Membership Fees: Some non-profit organizations offer membership programs where individuals or entities pay a fee to become members. Membership fees can provide regular income and may include benefits like access to events, resources, or networking opportunities.
(iv)Fundraising Events: Non-profits organize fundraising events such as galas, charity auctions, walkathons, and benefit concerts. These events not only raise funds but also engage the community and promote the organization’s cause.
(v)Earned Income: Some non-profits generate income by providing goods or services related to their mission. For instance, a museum might charge admission fees, or a charitable hospital might charge for medical services on a sliding scale.
(vi)Investment Income: Non-profit organizations often invest their funds in stocks, bonds, real estate, or other investment vehicles. The income generated from these investments can contribute to their financial sustainability
(PICK ANY FIVE)
(i)The account doesn’t provide information about when specific transactions occurred. It only records cash flows during a given period, making it difficult to analyze the timing of financial activities.
(ii)The Receipts and Payments Account lacks the detailed breakdown that could help in assessing the efficiency of spending or identifying trends.
(iii) The account doesn’t provide information about liabilities or debts owed by the organization, which is essential for understanding its overall financial obligations.
(iv)Due to its focus on cash activities, the Receipts and Payments Account might not provide the depth of information needed for effective decision-making or strategic planning.
(v)The reciept and payment account doesn’t provide information about when specific transactions occurred. It only records cash flows during a given period, making it difficult to analyze the timing of financial activities.
(vi)The account might not adhere to Generally Accepted Accounting Principles (GAAP), which could be a concern when reporting to external parties or seeking transparency and accountability.
(PICK ANY TWO)
(i)Income Taxes: Individuals and corporations pay income taxes based on their earnings and profits.
(ii)Corporate Taxes: Businesses are taxed on their profits and income generated from their operations.
(iii)Customs Duties: Taxes imposed on imported goods, helping to protect domestic industries and generate revenue.
(iv)Payroll Taxes: Taxes collected from employers and employees to fund programs such as Social Security, Medicare, and unemployment benefits.
(v)Value Added Tax (VAT): A consumption tax levied on the value added at each stage of production or distribution of goods and services.
Source documents: Source documents are original records or pieces of evidence that provide information about financial transactions and business activities. These documents serve as the foundation for maintaining accurate accounting records and generating financial statements. They are crucial for ensuring transparency, accountability, and the ability to trace and verify transactions.
Debit note: Debit note is a document issued by a buyer to inform a seller about a debit entry that needs to be made in their accounts payable. It’s commonly used to correct errors in invoices, return goods to a supplier, or make adjustments to the amount owed. debit note is a tool used in business transactions to rectify errors, make adjustments, and maintain accurate financial records between buyers and sellers.
Prime entry: Prime entry, also known as original entry, refers to the initial recording of a financial transaction or event in the accounting books. It is the first step in the accounting process and involves entering transaction details directly into the ledger or accounting system. prime entry is the foundational step in the accounting process, where raw transaction data is recorded directly from source documents
(PICK ANY TWO)
(i) Government accounting focuses on accountability, transparency, and stewardship of public funds. WHILE Private sector accounting focuses on profitability and shareholder value.
(ii) In government accounting , Stakeholders include citizens, taxpayers, elected officials, regulatory agencies, and oversight bodies WHILE Private sector accounting, Stakeholders include shareholders, investors, creditors, customers, and employees.
(iii) Government entities derive revenue from taxes, fees, grants, and other public sources. WHILE Private companies generate revenue from sales, services, investments, and other business activities.
(iv) Government entities operate under budgetary constraints set by legislative bodies. WHILE Private companies develop budgets to plan and control business operations, aiming to optimize profitability and growth.
(v) Government accounting follows standards and guidelines set by governmental accounting bodies WHILE Private sector accounting adheres to generally accepted accounting principles (GAAP)
(PICK ANY TWO)
(i) Cash Account
(ii) Inventory Account
(iii) Property, Plant, and Equipment (PP&E) Account
(iv) Accounts Receivable Account
(v)Accounts Payable Account
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