Neco 2023 June/July Financial Accounting Answers


1(a)What is Bank Reconciliation Statement? (2 and half marks)
(b)Explain five reasons that cause disagreement between bank statement balance and cash book balance. (10marks)

2 Explain the following terms:
(i)Error of principle
(ii)Error of compensation
(iii)Error of omission
(iv)Error of commission
(v)Error of complete reversal of entries (12 and half marks)

3(a)Lin and explain three sources of income to a non-profit making organisation.(9marks)
(b)State five limitations of receipt and payment account.(2 and half marks)
(c)Itemize two sources of revenue to the federal govenment. (1mark)

4(a)Write short notes on the following:
(1)Source documents
(ii)Debit note
(iii)Prime entry (7 and half marks)
(b)State two differences between government and private sector accounting.(4 marks)
(c)List two examples of real accounts.(1mark)

ACCOUNTING INSTRUCTIONS: Answer five (5) questions in all, Two (2) questions from section A, and Three (3) questions from section B.


============ANSWERS TWO FROM SECTION A ===========

(1a) 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.

(1a) Bank Reconciliation Statement: This 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.

(i) Outstanding checks
ii) Deposits in transit
iii) Bank charges and fees
iv) Errors in recording transactions
v) Direct debits or automatic payments
(vi) Deposited/Un-deposited Funds

(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.

(vi) 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.

(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. This error affects the accuracy of financial statements and requires correction to reflect the proper accounting treatment.

(i) Donations
(ii) Grants
(iii) Membership Fees
(iv) Fundraising Events
(v) Endowment Income
(vi) Sponsorship

(i) Donations: Non-profit organizations often rely on donations from individuals, corporations, and other entities to fund their activities. These can be in the form of cash, goods, or services.
(ii) Grants: Grants are awards of money or in-kind goods and services that are given to non-profits from state or federal government agencies, private individuals, or foundations.
(iii) Membership Fees: Membership fees are payments collected from members of the organization. These fees can be used to provide services to members or to fund operations.
(iv) Fundraising Events: Non-profits often hold fundraising events such as galas, auctions, and raffles to raise funds for their mission.
(v) Endowment Income: Endowments are investments made by the organization that can generate income over time.
(vi) Sponsorship: Non-profits may receive funding from companies or individuals who sponsor the organization’s activities. This allows the sponsor to get their name associated with the organization’s mission.

(i) Limited Information
(ii) No Reconciliation
(iii) No Audit Trail
(v) Dual Entry System
(vii) Inaccurate Accounting
(viii) Not Suitable for Auditing

(i) Customs Duties
(ii) Corporate Income Taxes
(iii) Excise Taxes
(iv) Social Insurance Taxes
(v) Personal Income Taxes

(4ai) Source documents: Source documents are the original records that provide evidence of a business transaction. These documents include invoices, receipts, bank statements, purchase orders, sales orders, and contracts. Source documents are essential for recording transactions accurately and are used as the primary source of information for financial statements.

(4aii) Debit Note: A debit note is a document that is used when a company receives goods or services that are not up to the agreed upon standards or have been charged incorrectly. The debit note is a request from the buyer to the seller to debit their account for an invoice that was incorrectly issued or for a return of goods or services that are not satisfactory.

(4aiii) Prime Entry: Prime entry is a bookkeeping method used in double-entry accounting where transactions are entered first into an accounts ledger before being posted to the general ledger. This method allows businesses to review and analyse incoming data prior to posting to the general ledger, allowing for more accurate record keeping.

(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)

(i) Cash
(ii) Accounts Receivable
(iii) Inventory
(iv) Fixed Assets
(v) Accounts Payable
(vi) Equity Accounts
(vii) Loans Payable
(viii) Salaries and Wages

============ANSWERS THREE FROM SECTION B ===========

Neco 2023 June/July Financial Accounting Answers

Neco 2023 June/July Financial Accounting Answers

Neco 2023 June/July Financial Accounting Answers


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