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ICSAN Intro Accounting study materials
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ICSAN Intro Accounting practice questions

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Question 1Nature, Purpose and Scope of Accounting

Which branch of accounting is primarily concerned with preparing general-purpose financial statements for parties outside the reporting entity?

  1. Cost accounting
  2. Financial accounting Correct answer.
  3. Management accounting
  4. Auditing

Explanation

Financial accounting records transactions and summarises them into general-purpose statements such as the statement of financial position and statement of profit or loss, addressed to external users like investors and lenders. Management and cost accounting serve internal decision-making, while auditing is an assurance activity rather than a reporting branch.

Question 2Nature, Purpose and Scope of Accounting

The accounting equation underlying the statement of financial position can be stated as which of the following?

  1. Assets plus liabilities equal capital
  2. Assets equal capital plus liabilities Correct answer.
  3. Capital equals assets plus liabilities
  4. Liabilities equal assets plus capital

Explanation

The entity's resources (assets) are financed either by the owner's residual interest (capital) or by amounts owed to third parties (liabilities), so assets equal capital plus liabilities. Rearranging the same identity gives capital equal to assets minus liabilities.

Question 3Nature, Purpose and Scope of Accounting

A trader purchases office furniture for resale use in the business and pays by cheque. Which pair of effects does this transaction have on the accounting equation?

  1. Increase an asset and increase capital
  2. Increase an asset and decrease another asset Correct answer.
  3. Increase an asset and increase a liability
  4. Decrease an asset and decrease a liability

Explanation

Furniture is an asset acquired, while the bank balance is an asset given up, so total assets are unchanged and the equation still balances. No liability or capital movement arises because the business paid immediately from its own funds.

Question 4Nature, Purpose and Scope of Accounting

Which concept requires that the financial statements of a business be prepared separately from the private affairs of its owner?

  1. Going concern
  2. Business entity Correct answer.
  3. Accrual
  4. Consistency

Explanation

The business entity concept treats the business as distinct from its owners, so only transactions affecting the business are recorded. Personal spending by the owner is therefore treated as drawings rather than as a business expense.

Question 5Nature, Purpose and Scope of Accounting

Under the accrual basis, revenue is recognised in the period in which it is earned. Which event therefore triggers recognition of sales revenue?

  1. When the customer's payment is received in the bank
  2. When the invoice is filed in the accounting records
  3. When the goods are delivered and the seller has performed its obligations Correct answer.
  4. When the customer places the order

Explanation

Accrual accounting recognises revenue when the performance obligation is satisfied, which for goods normally occurs on delivery and transfer of control. Receipt of cash is a settlement of the resulting receivable and does not by itself determine the timing of revenue.

Question 6Nature, Purpose and Scope of Accounting

A business receives a bank loan of N500,000. How does this transaction affect the elements of the financial statements?

  1. Assets increase and liabilities increase Correct answer.
  2. Liabilities increase and capital decreases
  3. Assets increase and capital increases
  4. Assets increase and liabilities decrease

Explanation

Cash, an asset, rises by the amount received, and the obligation to repay the lender is a liability that rises by the same amount. Capital is untouched because a loan is borrowed finance rather than an owner's contribution.

Question 7Nature, Purpose and Scope of Accounting

Which qualitative characteristic is enhanced when information can be compared with similar information about other entities and about the same entity in other periods?

  1. Timeliness
  2. Comparability Correct answer.
  3. Understandability
  4. Relevance

Explanation

Comparability lets users identify similarities and differences between items, and it is supported by consistent accounting policies across periods. Relevance concerns predictive or confirmatory value, timeliness concerns availability in time, and understandability concerns clear presentation.

Question 8Nature, Purpose and Scope of Accounting

A trader pays N120,000 in advance for one year's insurance on 1 April, and the accounting year ends on 31 December. Using the accrual basis, what amount is charged as insurance expense for the year?

  1. N10,000
  2. N120,000
  3. N90,000 Correct answer.
  4. N30,000

Explanation

Nine months of the twelve-month cover fall within the accounting year, so the expense is nine-twelfths of N120,000, which is N90,000. The remaining N30,000 relates to the following period and is carried forward as a prepayment.

Question 9Nature, Purpose and Scope of Accounting

Which of the following best describes the purpose of the statement of profit or loss?

  1. To show the assets, liabilities and capital of the entity at a point in time
  2. To disclose the accounting policies adopted by the entity
  3. To show the cash inflows and outflows of the entity over a period
  4. To report the income earned and expenses incurred over a period and the resulting profit or loss Correct answer.

Explanation

The statement of profit or loss measures performance over a period by matching income earned with the expenses incurred in earning it. The statement of financial position, by contrast, is a position statement at a single date.

Question 10Nature, Purpose and Scope of Accounting

An owner takes goods from the business for personal use. In the accounting records this is treated as which of the following?

  1. A sale to the owner at cost
  2. An operating expense in the statement of profit or loss
  3. Drawings, reducing capital Correct answer.
  4. A liability owed by the owner

Explanation

The business entity concept means personal use of business resources is not a business expense; it is a withdrawal of the owner's interest recorded as drawings and deducted from capital. No profit arises because the goods were not sold in the ordinary course of trade.

Question 11Nature, Purpose and Scope of Accounting

Which of the following groups is regarded as a primary internal user of accounting information?

  1. Investment analysts
  2. Management of the entity Correct answer.
  3. Trade creditors
  4. Tax authorities

Explanation

Management uses accounting information continuously for planning, decision-making and control, making it an internal user. Tax authorities, creditors and analysts are external users who rely on published or supplied reports.

Question 12Nature, Purpose and Scope of Accounting

An entity recognises a provision for a lawsuit it expects to lose, even though the case will be settled in a later period. Which accounting principle most directly supports this treatment?

  1. Consistency
  2. Business entity
  3. Money measurement
  4. Prudence Correct answer.

Explanation

Prudence requires that liabilities and losses be recognised when they are probable rather than only when they crystallise, so expected losses are provided for in the period they become known. This prevents the financial statements from overstating the entity's position.

Question 13Nature, Purpose and Scope of Accounting

Which of the following transactions is a capital expenditure rather than revenue expenditure?

  1. Replacing a broken window pane in the store
  2. Paying the monthly electricity bill
  3. Installing a new air-conditioning system that extends the building's usable life Correct answer.
  4. Repainting the office walls to restore their appearance

Explanation

Capital expenditure acquires or improves a non-current asset and provides benefit beyond the current period, so the air-conditioning system is capitalised. Repairs and running costs merely maintain existing capacity and are charged to profit or loss.

Question 14Nature, Purpose and Scope of Accounting

A business reports profit of N80,000 for the year but its bank balance fell during the same year. Which statement best explains this apparent contradiction?

  1. Profit excludes non-cash items such as depreciation
  2. Profit and cash are the same measure, so the records must contain an error
  3. Profit is measured on the accrual basis, while cash flow reflects the timing of receipts and payments Correct answer.
  4. A fall in the bank balance always indicates that a loss has been made

Explanation

Profit is determined by matching income earned with expenses incurred, whereas the bank balance moves with the actual timing of cash receipts and payments. Credit sales, purchases of non-current assets and loan repayments can all reduce cash without reducing profit.

Question 15Nature, Purpose and Scope of Accounting

Which of the following is a limitation of the statement of financial position as a source of information for users?

  1. It distinguishes between capital and liabilities
  2. It is prepared at the end of the accounting period
  3. It reports the entity's liabilities at a single date
  4. It records assets at their historical cost, which may differ materially from current value Correct answer.

Explanation

Because many assets are carried at historical cost less accumulated depreciation, the statement may understate or misstate their current worth, which limits its usefulness for valuation purposes. Its date-specific nature and its classification of items are features, not limitations.

Question 16Nature, Purpose and Scope of Accounting

A firm's owner invests a delivery van that she previously used privately, and the business will use it for deliveries. How should this be recorded?

  1. As revenue income because the van has a market value
  2. As a drawing because the owner previously used the van privately
  3. As a capital contribution increasing both the motor vehicle asset and capital Correct answer.
  4. As a purchase of a motor vehicle on credit from the owner

Explanation

Introducing a private asset into the business is a contribution by the owner, so the motor vehicle asset and capital both increase by the agreed value. It is not a liability because the owner does not expect repayment, and it generates no revenue.

Question 17Accounting Concepts, Conventions and the Regulatory Framework

Under the going concern assumption, financial statements are normally prepared on the basis that the entity will continue in operation for the foreseeable future. Which situation most directly undermines that assumption?

  1. The entity has reported a net loss for the current year only.
  2. The entity has declared a dividend lower than in the previous year.
  3. The entity has changed its depreciation method from reducing balance to straight line.
  4. The entity's major lender has called in all borrowings and the entity has no realistic prospect of refinancing. Correct answer.

Explanation

Going concern is undermined when there is evidence the entity cannot continue operating, such as a lender demanding repayment with no realistic prospect of refinancing. A single loss year, a depreciation policy change or a reduced dividend does not by itself create a going concern problem.

Question 18Accounting Concepts, Conventions and the Regulatory Framework

Which statement best describes the accrual basis of accounting as required by the conceptual framework?

  1. Transactions are recorded only when cash is received or paid.
  2. Income and expenses are recognised when they arise, not when cash is received or paid. Correct answer.
  3. Assets are always recorded at their original cost.
  4. Financial statements are prepared only for a twelve-month period.

Explanation

The accrual basis requires the effects of transactions to be recognised when they occur, not when cash changes hands. This means income is recognised when earned and expenses when incurred, regardless of the timing of cash flows.

Question 19Accounting Concepts, Conventions and the Regulatory Framework

A business owner takes goods from inventory for personal use. Under which convention must this be recorded as drawings rather than as a sale or an expense?

  1. The business entity convention Correct answer.
  2. The materiality convention
  3. The prudence convention
  4. The consistency convention

Explanation

The business entity convention treats the owner and the business as separate for accounting purposes, so goods taken by the owner are drawings, not business sales or expenses. This keeps the financial statements focused on the entity's own transactions.

Question 20Accounting Concepts, Conventions and the Regulatory Framework

Which pair of qualitative characteristics are the two fundamental characteristics of useful financial information?

  1. Relevance and faithful representation Correct answer.
  2. Prudence and consistency
  3. Verifiability and understandability
  4. Comparability and timeliness

Explanation

The conceptual framework identifies relevance and faithful representation as the fundamental qualitative characteristics. Comparability, verifiability, timeliness and understandability are enhancing characteristics.

Question 21Accounting Concepts, Conventions and the Regulatory Framework

An entity's inventory, purchased for NGN 200,000, could now be sold for NGN 260,000. Under the historical cost convention, at what amount is the inventory normally carried?

  1. NGN 60,000
  2. NGN 200,000 Correct answer.
  3. NGN 260,000
  4. NGN 230,000

Explanation

Under historical cost, assets are recorded at the amount paid to acquire them, so the inventory is carried at NGN 200,000. However, the lower of cost and net realisable value rule would override this if the selling price had fallen below cost.

Question 22Accounting Concepts, Conventions and the Regulatory Framework

Which body is primarily responsible for issuing International Financial Reporting Standards?

  1. The International Accounting Standards Board Correct answer.
  2. The International Federation of Accountants
  3. The International Auditing and Assurance Standards Board
  4. The Financial Reporting Council of Nigeria

Explanation

The International Accounting Standards Board (IASB) is the independent standard-setting body that develops and issues IFRS. The other bodies either represent the profession, regulate locally, or set auditing standards.

Question 23Accounting Concepts, Conventions and the Regulatory Framework

A company changes its method of valuing inventory from FIFO to weighted average. Which accounting treatment best reflects the consistency convention?

  1. The change is recorded as a prior year adjustment to retained earnings without disclosure.
  2. The change is ignored and the old method is retained indefinitely.
  3. The change is disclosed, and the reason and effect on the financial statements are explained. Correct answer.
  4. The change is applied silently without disclosure because management prefers the new method.

Explanation

Consistency requires similar items to be treated the same way from period to period, but it permits a change where justified. Any change must be disclosed with its reason and effect so users can compare results.

Question 24Accounting Concepts, Conventions and the Regulatory Framework

Which of the following best illustrates the prudence convention in preparing financial statements?

  1. Valuing all assets at their current market value each year.
  2. Deliberately understating assets to create hidden reserves.
  3. Recognising a gain as soon as a contract is signed, before any performance occurs.
  4. Making a provision for a probable loss on a contract while not recognising an anticipated profit. Correct answer.

Explanation

Prudence involves caution under uncertainty, so probable losses are recognised while anticipated profits are not. It does not permit deliberate understatement, which would destroy neutrality.

Question 25Accounting Concepts, Conventions and the Regulatory Framework

A machine costing NGN 1,000,000 is expected to have a useful life of five years and no residual value. Using the straight-line method, what is the depreciation charge for the second year?

  1. NGN 100,000
  2. NGN 400,000
  3. NGN 200,000 Correct answer.
  4. NGN 250,000

Explanation

Straight-line depreciation spreads the depreciable amount evenly, so NGN 1,000,000 divided by five years gives NGN 200,000 each year. The charge is the same in the second year as in the first.

Question 26Accounting Concepts, Conventions and the Regulatory Framework

Under the materiality convention, which item is most likely to be treated as immaterial and expensed immediately?

  1. A delivery van purchased for NGN 8 million
  2. A machine purchased for NGN 20 million
  3. A building purchased for NGN 50 million
  4. A stapler purchased for NGN 1,500 with a useful life of three years Correct answer.

Explanation

Materiality allows items too small to influence users' decisions to be expensed rather than capitalised, even if they technically have a useful life beyond one year. A low-cost stapler is the clearest example among the choices.

Question 27Accounting Concepts, Conventions and the Regulatory Framework

Which statement correctly distinguishes a conceptual framework from an accounting standard?

  1. A framework prescribes specific disclosure formats, while standards provide general principles.
  2. A framework provides underlying concepts and principles, while standards contain specific recognition and measurement requirements. Correct answer.
  3. A framework applies only to public entities, while standards apply only to private entities.
  4. A framework is legally enforceable, while standards are merely guidance.

Explanation

The conceptual framework sets out the objective of financial reporting and the concepts that underpin standards, while individual standards give specific requirements. Standards are built on the framework's principles.

Question 28Accounting Concepts, Conventions and the Regulatory Framework

An entity recognises a liability for electricity consumed in December, although the bill will only be paid in January. Which concept requires this treatment?

  1. The consistency convention
  2. The going concern assumption
  3. The accrual concept Correct answer.
  4. The historical cost convention

Explanation

The accrual concept requires expenses to be recognised in the period they are incurred, regardless of when cash is paid. Electricity consumed in December is therefore an expense of December with a corresponding accrual liability.

Question 29Accounting Concepts, Conventions and the Regulatory Framework

A company provides a warranty on goods sold. Based on past experience, a reliable estimate of the expected repair cost can be made. Under the conceptual framework, when should a provision be recognised?

  1. Only when the warranty period has expired
  2. When management decides to offer the warranty in future periods
  3. Only when a customer actually makes a warranty claim
  4. When the obligation arises from the sale and a reliable estimate can be made Correct answer.

Explanation

A liability is recognised when a present obligation exists from a past event and the amount can be reliably measured. The sale creates the obligation, and a reliable estimate based on experience supports recognition.

Question 30Accounting Concepts, Conventions and the Regulatory Framework

Which of the following is an enhancing qualitative characteristic that allows users to identify similarities and differences between items and across periods?

  1. Relevance
  2. Comparability Correct answer.
  3. Faithful representation
  4. Materiality

Explanation

Comparability is an enhancing characteristic that enables users to identify similarities in and differences between items, both within a period and across periods. Relevance and faithful representation are fundamental, while materiality is entity-specific.

Question 31Accounting Concepts, Conventions and the Regulatory Framework

An entity's financial statements are prepared on a going concern basis, but a material uncertainty exists about its ability to continue operating. What is the correct treatment?

  1. Continue using the going concern basis and disclose the material uncertainty Correct answer.
  2. Change to a break-up basis without disclosure
  3. Restate all assets to their liquidation values and remove the uncertainty from the notes
  4. Ignore the uncertainty because the entity is still trading

Explanation

Where a material uncertainty exists but the going concern basis remains appropriate, the entity continues on that basis and discloses the uncertainty. Only when the basis is judged inappropriate would a different basis be adopted.

Question 32Accounting Concepts, Conventions and the Regulatory Framework

Which of the following best describes the objective of general purpose financial reporting according to the conceptual framework?

  1. To determine the taxable profit of an entity for the year
  2. To provide financial information about the reporting entity that is useful to existing and potential investors, lenders and other creditors Correct answer.
  3. To guarantee that the entity will remain profitable
  4. To enable management to prepare the annual budget

Explanation

The objective is to provide financial information useful to existing and potential investors, lenders and other creditors in making decisions about providing resources to the entity. Tax, budgeting and profitability guarantees are not the purpose of general purpose reporting.

Question 33Accounting Concepts, Conventions and the Regulatory Framework

A retailer sells goods on credit in December and receives payment in February. Under the accrual basis, in which period is the revenue recognised?

  1. December, when the sale and transfer of goods occur Correct answer.
  2. February, when cash is received
  3. January, the midpoint of the credit period
  4. When the customer's account is finally closed

Explanation

Under accrual accounting, revenue is recognised when the performance obligation is satisfied, which is when the goods are transferred. The later receipt of cash affects only the receivable, not the timing of revenue.

Question 34Accounting Concepts, Conventions and the Regulatory Framework

Which of the following is a limitation of historical cost accounting that the conceptual framework addresses through alternative measurement bases?

  1. Historical cost cannot be verified from source documents.
  2. Historical cost requires too much estimation of future cash flows.
  3. Historical cost ignores the effects of changing prices, so carrying amounts may not reflect current values. Correct answer.
  4. Historical cost is prohibited for all assets under IFRS.

Explanation

Historical cost records assets at their original transaction price, so it does not reflect subsequent price changes and may lose relevance. The framework therefore permits other measurement bases, such as current value, where they provide more relevant information.

Question 35Accounting Concepts, Conventions and the Regulatory Framework

An entity applies prudence by recognising a provision for a probable loss, but it also deliberately delays recognising a confirmed insurance recovery that is virtually certain. Which qualitative characteristic is most directly undermined by delaying the recovery?

  1. Comparability
  2. Faithful representation Correct answer.
  3. Timeliness
  4. Understandability

Explanation

Deliberately delaying a virtually certain recovery introduces bias and makes the financial statements less neutral, undermining faithful representation. Prudence permits caution, but it does not justify the deliberate omission of an asset that meets recognition criteria.

Question 36Accounting Concepts, Conventions and the Regulatory Framework

A company capitalises a low-value item costing NGN 2,000 and depreciates it over three years, while expensing similar items in prior years. Which convention is most clearly breached?

  1. The going concern assumption
  2. The consistency convention Correct answer.
  3. The accrual concept
  4. The business entity convention

Explanation

Applying a different treatment to similar items in different periods without justification breaches consistency and harms comparability. Consistency requires similar items to be treated the same way from period to period unless a change is justified and disclosed.

Question 37Double-Entry Bookkeeping and Books of Prime Entry

In double-entry bookkeeping, every transaction is recorded so that the total of debits equals the total of credits. Which statement best describes the effect of this rule on the accounting equation?

  1. The equality of assets and liabilities plus capital is preserved after each entry. Correct answer.
  2. The trial balance can be prepared only after the year-end adjustments are posted.
  3. The assets of the entity always increase by the amount of the transaction.
  4. The profit for the period is fixed at the moment the transaction is journalised.

Explanation

Because each transaction is entered with equal debits and credits, the two sides of the accounting equation (assets = liabilities + capital) remain in balance after every posting. The rule is a mechanical check on arithmetic accuracy, not a statement about growth, profit timing, or when a trial balance may be extracted.

Question 38Double-Entry Bookkeeping and Books of Prime Entry

A business pays N45,000 cash to a supplier in full settlement of an invoice previously recorded as a credit purchase. Which pair of entries correctly records this payment?

  1. Debit cash; credit payables
  2. Debit payables; credit cash Correct answer.
  3. Debit cash; credit purchases
  4. Debit purchases; credit cash

Explanation

The liability owed to the supplier is reduced, and a reduction in a liability is a debit to the payables (creditors) account. Cash leaves the business, and a reduction in an asset is a credit to the cash account.

Question 39Double-Entry Bookkeeping and Books of Prime Entry

Which book of prime entry is used to record credit notes issued to customers for goods returned?

  1. The sales day book
  2. The purchases returns day book
  3. The general journal
  4. The sales returns day book Correct answer.

Explanation

A credit note issued to a customer reduces the amount the customer owes, so it is a sales return. Sales returns are first recorded in the sales returns day book (returns inwards book) before being posted to the ledger.

Question 40Double-Entry Bookkeeping and Books of Prime Entry

A petty cash imprest of N20,000 is reimbursed at the end of the month when vouchers total N14,600. What amount is restored to the float, and what is the entry in the petty cash book?

  1. N14,600 is restored and debited to petty cash Correct answer.
  2. N14,600 is restored and credited to petty cash
  3. N5,400 is restored and credited to petty cash
  4. N20,000 is restored and debited to petty cash

Explanation

Under the imprest system the float is restored to its original amount, so the reimbursement equals the vouchers spent, N14,600. The petty cash book records this as a receipt, debiting petty cash and crediting the bank or main cash account.

Question 41Double-Entry Bookkeeping and Books of Prime Entry

Which of the following errors will be detected by extracting a trial balance?

  1. A purchase was debited to purchases and credited to payables as N8,000 instead of N80,000. Correct answer.
  2. A credit sale of N80,000 was completely omitted from the records.
  3. A payment of rent was debited to rent and credited to cash.
  4. A cash sale was debited to the bank account and credited to sales.

Explanation

A trial balance only proves that total debits equal total credits. When both sides of an entry are posted at the same wrong amount, the totals still agree, so the trial balance will not reveal it; the error is one of original entry and must be found by comparison with source documents.

Question 42Double-Entry Bookkeeping and Books of Prime Entry

A business maintains a three-column cash book. Which item is entered in the discount columns rather than in the cash or bank columns?

  1. Bank charges shown on the bank statement
  2. A bank transfer received from a customer
  3. A discount received from a supplier for early settlement of an invoice Correct answer.
  4. Interest charged by the bank on an overdrawn account

Explanation

The discount columns record discounts allowed to customers and discounts received from suppliers; they are memorandum columns and do not affect the cash or bank balances. Discount received is entered on the debit side of the cash book as a reduction of the payment made.

Question 43Double-Entry Bookkeeping and Books of Prime Entry

The sales day book shows invoiced sales of N960,000 for the month, of which N40,000 relates to goods sold on credit to a customer who is also a supplier and is settled by set-off. What is the correct double entry to post the sales day book total to the ledger?

  1. Debit receivables N960,000; credit sales N960,000 Correct answer.
  2. Debit receivables N920,000; credit sales N920,000
  3. Debit sales N920,000; credit receivables N920,000
  4. Debit sales N960,000; credit receivables N960,000

Explanation

The sales day book total is posted as a debit to the receivables control account and a credit to the sales account. The set-off does not change the invoiced sales figure; it is a separate contra entry between the receivables and payables ledgers.

Question 44Double-Entry Bookkeeping and Books of Prime Entry

Which document is the source for entries in the purchases day book?

  1. A remittance advice accompanying a payment
  2. A supplier's invoice for credit purchases Correct answer.
  3. A purchase order sent to a supplier
  4. A goods received note signed at the warehouse

Explanation

The purchases day book records credit purchases from suppliers' invoices, which show the amount, date and terms. A purchase order is only an intention to buy, a goods received note confirms delivery but not price, and a remittance advice relates to payment.

Question 45Double-Entry Bookkeeping and Books of Prime Entry

A trader's trial balance has total debits of N1,240,000 and total credits of N1,232,000. The difference has been posted to a suspense account. Which of the following errors could explain the N8,000 difference?

  1. A payment of N8,000 to a supplier was debited to payables and credited to cash.
  2. A cash sale of N8,000 was posted to the sales account only. Correct answer.
  3. A credit purchase of N8,000 was recorded in the purchases day book twice.
  4. A discount received of N8,000 was omitted from the discount received account.

Explanation

Posting only one side of a transaction leaves the trial balance out of agreement by the amount of the missing side; here a debit to cash of N8,000 was never made, so credits exceed debits by N8,000. The suspense account absorbs this difference until the omission is found.

Question 46Double-Entry Bookkeeping and Books of Prime Entry

Which statement correctly describes a contra entry in the books of a business?

  1. It closes the profit and loss account to the capital account.
  2. It corrects an error by reversing the original entry in full.
  3. It transfers a balance between two accounts of the same person or entity. Correct answer.
  4. It records a transaction between the business and an external party.

Explanation

A contra entry offsets balances between two accounts relating to the same party, for example when a customer who is also a supplier settles amounts owed in both directions. The double entry is a debit to payables and a credit to receivables for the same person.

Question 47Double-Entry Bookkeeping and Books of Prime Entry

A company's bank statement shows a balance of N520,000 while its cash book shows N468,000. Cheques paid to suppliers totalling N76,000 have not yet been presented, and bank charges of N24,000 appear on the statement but not in the cash book. What is the correct cash book balance after the necessary adjustment?

  1. N444,000 Correct answer.
  2. N520,000
  3. N492,000
  4. N468,000

Explanation

Bank charges are recorded by the business only when it learns of them, so the cash book must be credited with N24,000, reducing the balance from N468,000 to N444,000. Unpresented cheques do not affect the cash book; they are dealt with in the bank reconciliation statement.

Question 48Double-Entry Bookkeeping and Books of Prime Entry

In the imprest system of petty cash, what is the purpose of the petty cash voucher?

  1. To authorise the original establishment of the imprest amount
  2. To support each payment and show the expense heading to be charged Correct answer.
  3. To record the reimbursement received from the main cash book
  4. To reconcile the petty cash balance with the bank statement

Explanation

Each petty cash payment must be supported by a voucher signed by the recipient and the person authorising it. The voucher provides the details needed to analyse the payment to the correct expense account and to prove the amount spent when the float is reimbursed.

Question 49Double-Entry Bookkeeping and Books of Prime Entry

A credit note for N12,000 received from a supplier for goods returned has been entered in the purchases returns day book but not yet posted to the ledgers. What is the effect on the payables control account?

  1. It is understated by N12,000 until the posting is made.
  2. It is overstated by N24,000 because the return reduces payables twice.
  3. It is correctly stated because the day book entry is sufficient.
  4. It is overstated by N12,000 until the posting is made. Correct answer.

Explanation

A purchases return reduces the amount owed to the supplier, so the payables control account should be debited with N12,000. Until that posting is made the liability remains higher than it should be, so payables are overstated by the amount of the credit note.

Question 50Double-Entry Bookkeeping and Books of Prime Entry

Which ledger account is debited when goods are withdrawn by the owner for personal use?

  1. The purchases account
  2. The capital account
  3. The drawings account Correct answer.
  4. The sales account

Explanation

Goods taken by the owner are not a sale but a reduction of the owner's equity, recorded as drawings. The double entry is to debit drawings and credit purchases, since the goods were originally bought for resale.