SS1 Financial Accounting 3rd Term Questions and Answers

Financial Accounting

Class: SS1
Duration: 1hr 30mins

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Table of Contents – Weekly Scheme of Work

• Week 1: The Bank Account and Its Operations
• Week 2: Bank Reconciliation Statement
• Week 3: Bank Reconciliation Statement (Continued)
• Week 4: Final Accounts of a Sole Trader – Introduction
• Week 5: Final Accounts of a Sole Trader – Trading and Profit & Loss Account
• Week 6: Final Accounts of a Sole Trader – Adjustments
• Week 7: The Balance Sheet – Meaning and Format
• Week 8: The Balance Sheet – Classification of Assets and Liabilities
• Week 9: Opening Entries – Meaning and Purpose
• Week 10: Recording of Subsequent Financial Transactions
• Week 11: Revision of Weeks 1–10
• Week 12: Examination

Objective Questions

1. The bank statement is usually prepared by the:
   A. Customer
   B. Cashier
   C. Bank
   D. Accountant
2. A cheque that is not honored by the bank is called:
   A. Bank draft
   B. Dishonoured cheque
   C. Certified cheque
   D. Counter cheque
3. Which of the following is NOT a feature of a current account?
   A. Cheque book
   B. Interest on deposit
   C. Overdraft facility
   D. Frequent withdrawals
4. The main purpose of bank reconciliation is to:
   A. Check profit and loss
   B. Update the ledger
   C. Detect fraud
   D. Reconcile cashbook with bank statement
5. An overdraft occurs when:
   A. Bank refuses a deposit
   B. A customer deposits excess cash
   C. A customer withdraws more than the balance
   D. A cheque is dishonored
6. The book used to record all bank transactions is called:
   A. Cashbook
   B. Ledger
   C. Journal
   D. Invoice
7. Bank charges are usually recorded on the:
   A. Credit side of the bank statement
   B. Debit side of the bank statement
   C. Debit side of cash account
   D. Credit side of cash account
8. A trader’s trading account is used to calculate:
   A. Capital
   B. Net profit
   C. Gross profit
   D. Expenses
9. Carriage inwards is added to:
   A. Sales
   B. Opening stock
   C. Purchases
   D. Returns inwards
10. Rent paid is an example of:
    A. Revenue
    B. Expense
    C. Asset
    D. Liability
11. The balance sheet is prepared to:
    A. Show profit
    B. Show cash inflow
    C. Show financial position
    D. Record income
12. Capital is shown on the:
    A. Debit side of the balance sheet
    B. Credit side of the balance sheet
    C. Income statement
    D. Trial balance
13. Accrued income is recorded as a(n):
    A. Asset
    B. Liability
    C. Expense
    D. Revenue
14. Drawings are deducted from:
    A. Revenue
    B. Sales
    C. Capital
    D. Loan
15. Which of the following increases capital?
    A. Drawings
    B. Income
    C. Expenses
    D. Wages
16. The difference between total assets and liabilities is:
    A. Revenue
    B. Profit
    C. Capital
    D. Sales
17. Opening entry is used to:
    A. Record year-end balances
    B. Start new financial year
    C. Prepare cash flow
    D. Prepare balance sheet
18. The process of starting accounting records is called:
    A. Double entry
    B. Journalizing
    C. Opening entry
    D. Trial balance
19. The ledger where capital account is opened is:
    A. Sales ledger
    B. Purchases ledger
    C. Private ledger
    D. General ledger
20. Bad debts are classified as:
    A. Expenses
    B. Revenue
    C. Assets
    D. Liabilities
21. Credit sales are recorded in the:
    A. Cashbook
    B. Sales day book
    C. Purchases ledger
    D. Journal
22. Financial statements are prepared to show:
    A. Bank balance
    B. Profit or loss
    C. Cash in hand
    D. Credit sales
23. One of these is a function of a wholesaler:
    A. Buys from customers
    B. Stores goods
    C. Uses goods directly
    D. Buys in small quantities
24. Middlemen serve as:
    A. Consumers
    B. Manufacturers
    C. Intermediaries
    D. Government
25. Product distribution is hindered by:
    A. Good roads
    B. High demand
    C. Poor infrastructure
    D. High-quality goods
26. A document used to reconcile bank and cash records is:
    A. Ledger
    B. Trial balance
    C. Bank reconciliation statement
    D. Cashbook
27. Bank reconciliation is done to find:
    A. Missing vouchers
    B. Differences between bank and cash records
    C. Trial balance errors
    D. Receipts
28. Fixed assets appear in the:
    A. Trading account
    B. Cashbook
    C. Balance sheet
    D. Sales account
29. Returns inwards reduce:
    A. Capital
    B. Sales
    C. Purchases
    D. Expenses
30. Prepaid rent is a(n):
    A. Expense
    B. Liability
    C. Asset
    D. Revenue
31. Revenue is also known as:
    A. Gains
    B. Net income
    C. Earnings
    D. Profit
32. The net profit is transferred to:
    A. Cashbook
    B. Capital account
    C. Sales account
    D. Purchases account
33. Which of these is NOT a current asset?
    A. Cash
    B. Stock
    C. Equipment
    D. Debtors
34. The document sent by the bank to a customer showing transactions is called:
    A. Bank statement
    B. Ledger
    C. Cash slip
    D. Cheque
35. Which is a liability?
    A. Loan from bank
    B. Motor vehicle
    C. Debtors
    D. Inventory
36. Depreciation is charged on:
    A. Cash
    B. Stock
    C. Fixed assets
    D. Expenses
37. Which is a real account?
    A. Capital
    B. Sales
    C. Cash
    D. Salary
38. Commission received is a type of:
    A. Expense
    B. Income
    C. Liability
    D. Asset
39. The credit balance in a bank statement means:
    A. Overdraft
    B. Insufficient funds
    C. Bank owes the customer
    D. Customer owes the bank
40. Double entry principle states:
    A. Debit = Credit
    B. Assets = Liabilities
    C. Income = Expenses
    D. Sales = Purchases

Theory Questions

1. Explain the term “Bank Reconciliation Statement” and highlight four reasons why it is prepared.
2. State and explain five differences between the bank statement and the cashbook.
3. Define final accounts of a sole trader and list the components that make up the final accounts.
4. **Using appropriate formats, prepare a trading account from the following information:
   • Opening Stock: ₦10,000
   • Purchases: ₦40,000
   • Sales: ₦75,000
   • Returns Inwards: ₦5,000
   • Carriage Inwards: ₦2,000
   • Closing Stock: ₦15,000**
5. What is a balance sheet? State three major sections of a balance sheet and provide one example under each.
6. Define opening entry. Explain how it is used in recording the assets and liabilities of a business at the start of the year.
7. State and explain four functions of a bank account to a sole trader.
8. **Using a sample format, prepare a simple balance sheet from this data:
   • Capital: ₦80,000
   • Cash: ₦10,000
   • Debtors: ₦15,000
   • Equipment: ₦35,000
   • Creditors: ₦20,000**
9. Explain the following accounting terms with one example each:
   a. Drawings
   b. Prepaid expenses
   c. Accrued income
   d. Bad debt
   e. Depreciation
10. List and explain any five limitations of bank reconciliation statements in modern accounting practices.

Objective Answers

1. C — Banks prepare the bank statement for their customers.
2. B — A dishonoured cheque is one the bank refuses to pay.
3. B — Current accounts do not earn interest.
4. D — Bank reconciliation matches the cashbook with the bank statement.
5. C — An overdraft occurs when more money is withdrawn than is in the account.
6. A — Bank transactions are recorded in the cashbook.
7. B — Bank charges appear as debits in the bank statement.
8. C — The trading account shows gross profit.
9. C — Carriage inwards is added to purchases.
10. B — Rent is an expense.
11. C — The balance sheet reflects the financial position of a business.
12. B — Capital appears on the credit side of the balance sheet.
13. A — Accrued income is an asset because it is income yet to be received.
14. C — Drawings reduce the owner’s capital.
15. B — Income increases capital.
16. C — Capital = Total Assets – Liabilities.
17. B — Opening entries are made at the start of a new financial year.
18. C — Opening entry introduces opening balances into the books.
19. C — Capital accounts are found in the private (general) ledger.
20. A — Bad debts are treated as expenses.
21. B — Credit sales are entered in the sales day book.
22. B — Financial statements show profit or loss.
23. B — A wholesaler stores goods before resale.
24. C — Middlemen are intermediaries in the chain of distribution.
25. C — Poor infrastructure affects distribution.
26. C — Bank reconciliation statement is used to reconcile discrepancies.
27. B — It helps reconcile bank and cashbook differences.
28. C — Fixed assets like machinery appear in the balance sheet.
29. B — Returns inwards reduce sales revenue.
30. C — Prepaid rent is an asset because it’s a payment in advance.
31. C — Revenue is the earnings of a business.
32. B — Net profit is added to capital in the balance sheet.
33. C — Equipment is a fixed, not a current, asset.
34. A — A bank statement shows all transactions in a customer’s account.
35. A — Loans are liabilities to be repaid.
36. C — Depreciation is charged on fixed assets.
37. C — Cash is a real account representing physical assets.
38. B — Commission received is income.
39. C — Credit balance in the bank statement means the bank owes the customer.
40. A — The double-entry principle means every debit has a credit.

Theory Answers

1. Bank Reconciliation Statement

A Bank Reconciliation Statement is a document that matches the balance in an individual’s or business’s cashbook with the bank statement balance, identifying discrepancies between the two.

Reasons for preparation:

1. To detect errors in either the cashbook or bank statement.
2. To identify unpresented cheques that have not been cashed by the payee.
3. To identify uncredited lodgements, i.e., deposits not yet reflected by the bank.
4. To update the cashbook for items like bank charges or interest that were not recorded.

2. Differences Between Bank Statement and Cashbook

3. Final Accounts of a Sole Trader

Final accounts refer to the financial reports prepared at the end of an accounting period to determine profit or loss and the financial position.

Components:

1. Trading Account – to determine gross profit or loss.
2. Profit and Loss Account – to determine net profit or loss.
3. Balance Sheet – to show assets, liabilities, and capital.

4. Trading Account

Trading Account for the Year Ended

5. Balance Sheet and Its Sections

A balance sheet is a financial statement that shows the financial position of a business at a given time.

Sections:

1. Assets – e.g., Equipment, Cash.
2. Liabilities – e.g., Loans, Creditors.
3. Owner’s Equity – e.g., Capital, Drawings.

6. Opening Entry

Opening entry is the journal entry made in the books of a business to record assets, liabilities, and capital at the start of a new accounting period.

Usage:
It establishes the opening balances in the ledger based on the previous year’s closing balances.

Example:

Dr Cash 10,000  
Dr Equipment 20,000  
Cr Capital 30,000

7. Functions of a Bank Account to a Sole Trader

1. Safe custody of funds – protects against theft or fire.
2. Enables transactions – payments and receipts via cheques or transfers.
3. Access to bank loans/overdrafts – helps with capital needs.
4. Records for accounting – statements aid in preparing final accounts.

8. Balance Sheet

Balance Sheet as at Today’s Date

[Note: This simplified version may be adjusted for full accuracy with capital balancing.]

9. Accounting Terms

a. Drawings – Withdrawal of goods or cash by the owner.
Example: Owner withdraws ₦5,000 for personal use.

b. Prepaid Expenses – Expenses paid in advance.
Example: Rent paid for the next 6 months.

c. Accrued Income – Income earned but not received.
Example: Rent due but not yet paid.

d. Bad Debt – Amount owed by a debtor that cannot be recovered.
Example: A debtor declared bankrupt.

e. Depreciation – Reduction in value of an asset over time.
Example: A machine losing value due to use.

10. Limitations of Bank Reconciliation Statements

1. Does not detect all fraud – especially internal manipulation.
2. Delayed statements – hinder timely reconciliation.
3. Errors in both records – may cancel each other out.
4. Unidentified transactions – may require clarification from the bank.
5. Time-consuming process – especially for businesses with high transaction volume.

Conclusion

As you prepare for your WAEC, NECO, or school exams, remember that success in Financial Accounting depends on a clear understanding of principles, consistent revision, and correct application of formats. Every topic—from bank reconciliation to final accounts and balance sheets builds your foundation in managing real-life financial records.

Don’t just memorize definitions practice with past questions, master calculations, and revise regularly. Also, remember that examination malpractice is a serious offense. It can lead to suspension, disqualification, or even worse. Stay disciplined, focus on understanding, and build confidence through honest effort.

You’ve got this keep studying smart!