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2023 Neco FINANCIAL ACCOUNTING Answer
NUMBER 1
1a)A bank reconciliation statement is a document that compares the balances of an individual or company’s bank statement with their cash book. It is used to identify any discrepancies or differences between the two balances and reconcile them.
1b)
i) Outstanding checks: If there are checks that have been issued by the company but have not yet cleared the bank, they will not be reflected in the bank statement balance. This can cause a difference between the two balances.
ii) Deposits in transit: Similar to outstanding checks, if there are deposits that have been made by the company but have not yet been credited by the bank, they will not be reflected in the bank statement balance. This can also cause a difference between the two balances.
iii) Bank charges and fees: Banks often deduct various charges and fees from the account, such as service charges, overdraft fees, or wire transfer fees. These deductions may not be immediately recorded in the cash book, leading to a disagreement between the balances.
iv) Errors in recording transactions: Mistakes can occur when recording transactions in the cash book or when the bank processes transactions. These errors can lead to a difference between the bank statement balance and the cash book balance.
v) Direct debits or automatic payments: If there are any direct debits or automatic payments set up by the company, they may not be recorded in the cash book until the bank statement is received. This delay can cause a discrepancy between the two balances.
FINANCIAL ACCOUNTING
NUMBER 2
2)
(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.
FINANCIAL ACCOUNTING
NUMBER 3
3a)
i) Grants and donations: Non-profits often rely on grants from foundations, government agencies, or other organizations that provide financial support for specific programs or initiatives. Donations from individuals or businesses are also a common source of income for non-profits.
ii) Fundraising events: Non-profits often organize various fundraising events, such as galas, auctions, or charity runs, to generate income. These events involve soliciting sponsorships, selling tickets, or receiving donations from attendees.
iii)Membership fees or dues: Some non-profit organizations have a membership structure where individuals or entities can become members by paying a fee or dues. These fees contribute to the organization’s income and may provide additional benefits to members, such as access to resources or discounts.
Financial accounting answers
3b)
i)Lack of accrual basis: Receipt and payment accounts are based on cash transactions and do not consider accruals or outstanding expenses. It may not provide an accurate picture of the organization’s financial position.
ii) No distinction between capital and revenue items: Receipt and payment accounts do not differentiate between capital and revenue items. It may lead to confusion when analyzing the financial performance or identifying the organization’s assets and liabilities.
iii)Limited information on liabilities: Receipt and payment accounts mainly focus on cash inflows and outflows, neglecting details about outstanding debts, loans, or other financial obligations.
iv) No information on non-cash transactions: Receipt and payment accounts do not record non-cash transactions, such as depreciation, barter transactions, or in-kind donations. This may result in an incomplete representation of the organization’s financial activities.
v) Lack of financial ratios or analysis: Receipt and payment accounts present a basic summary of cash transactions, but they do not provide financial ratios or in-depth analysis that can help evaluate the organization’s financial health or performance.
3c)
i)Taxes: The federal government generates a significant portion of its revenue through various taxes, including income tax, corporate tax, sales tax, and excise taxes. These taxes are imposed on individuals, businesses, and goods/services to fund government operations and public services.
ii)Borrowing: The federal government may borrow money through the issuance of treasury bonds, bills, or notes to finance its operations or fund specific projects. This borrowing creates a source of revenue through the interest payments received from the borrowing entities. However, it also creates a liability for the government.
FINANCIAL ACCOUNTING
NUMBER 4
4a)
(i) Source document: A source document is a piece of written evidence that provides information about a transaction or event. It is used as a basis for recording the transaction in the accounting system. Examples of source documents include sales invoices, purchase receipts, bank statements, and payroll records.
(ii) Debit note: A debit note is a document issued by a seller to inform a buyer about an increase in the amount owed. It is used when there is an error in the original invoice, such as undercharging or missing items. The debit note adjusts the amount owed by increasing it, and it is sent to the buyer for payment.
(iii) Prime entry: Prime entry refers to the initial recording of a transaction in the accounting system. It involves entering the transaction details, such as the date, amount, and accounts affected, into the appropriate journal or ledger. Prime entry ensures that all transactions are properly recorded and serves as a basis for further accounting processes.
4b)
i)The main objective of government accounting is to track and report the financial activities of government entities, ensuring transparency and accountability in the use of public funds. *WHILE* Private sector accounting, on the other hand, aims to provide financial information to stakeholders for decision-making and profit maximization.
Ii)Government accounting is subject to specific regulations and accounting standards set by government authorities, such as the Government Accounting Standards Board (GASB). *WHILE* Private sector accounting follows generally accepted accounting principles (GAAP) or International Financial Reporting Standards (IFRS), depending on the jurisdiction.
4c)
– Cash: Cash is a real account as it represents actual money held by an individual or an organization. It is a tangible asset that can be physically counted.
– Buildings: Buildings are also real accounts as they represent physical assets owned by an individual.
