Financial Accounting
Class: SS1
Duration: 1hr 30mins
Examination malpractice is a serious offense. It may lead to disqualification, repetition, or suspension. Avoid it at all costs.
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
- The bank statement is usually prepared by the:
A. Customer
B. Cashier
C. Bank
D. Accountant - A cheque that is not honored by the bank is called:
A. Bank draft
B. Dishonoured cheque
C. Certified cheque
D. Counter cheque - 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 - 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 - 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 - The book used to record all bank transactions is called:
A. Cashbook
B. Ledger
C. Journal
D. Invoice - 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 - A trader’s trading account is used to calculate:
A. Capital
B. Net profit
C. Gross profit
D. Expenses - Carriage inwards is added to:
A. Sales
B. Opening stock
C. Purchases
D. Returns inwards - Rent paid is an example of:
A. Revenue
B. Expense
C. Asset
D. Liability - The balance sheet is prepared to:
A. Show profit
B. Show cash inflow
C. Show financial position
D. Record income - 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 - Accrued income is recorded as a(n):
A. Asset
B. Liability
C. Expense
D. Revenue - Drawings are deducted from:
A. Revenue
B. Sales
C. Capital
D. Loan - Which of the following increases capital?
A. Drawings
B. Income
C. Expenses
D. Wages - The difference between total assets and liabilities is:
A. Revenue
B. Profit
C. Capital
D. Sales - Opening entry is used to:
A. Record year-end balances
B. Start new financial year
C. Prepare cash flow
D. Prepare balance sheet - The process of starting accounting records is called:
A. Double entry
B. Journalizing
C. Opening entry
D. Trial balance - The ledger where capital account is opened is:
A. Sales ledger
B. Purchases ledger
C. Private ledger
D. General ledger - Bad debts are classified as:
A. Expenses
B. Revenue
C. Assets
D. Liabilities - Credit sales are recorded in the:
A. Cashbook
B. Sales day book
C. Purchases ledger
D. Journal - Financial statements are prepared to show:
A. Bank balance
B. Profit or loss
C. Cash in hand
D. Credit sales - 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 - Middlemen serve as:
A. Consumers
B. Manufacturers
C. Intermediaries
D. Government - Product distribution is hindered by:
A. Good roads
B. High demand
C. Poor infrastructure
D. High-quality goods - A document used to reconcile bank and cash records is:
A. Ledger
B. Trial balance
C. Bank reconciliation statement
D. Cashbook - Bank reconciliation is done to find:
A. Missing vouchers
B. Differences between bank and cash records
C. Trial balance errors
D. Receipts - Fixed assets appear in the:
A. Trading account
B. Cashbook
C. Balance sheet
D. Sales account - Returns inwards reduce:
A. Capital
B. Sales
C. Purchases
D. Expenses - Prepaid rent is a(n):
A. Expense
B. Liability
C. Asset
D. Revenue - Revenue is also known as:
A. Gains
B. Net income
C. Earnings
D. Profit - The net profit is transferred to:
A. Cashbook
B. Capital account
C. Sales account
D. Purchases account - Which of these is NOT a current asset?
A. Cash
B. Stock
C. Equipment
D. Debtors - The document sent by the bank to a customer showing transactions is called:
A. Bank statement
B. Ledger
C. Cash slip
D. Cheque - Which is a liability?
A. Loan from bank
B. Motor vehicle
C. Debtors
D. Inventory - Depreciation is charged on:
A. Cash
B. Stock
C. Fixed assets
D. Expenses - Which is a real account?
A. Capital
B. Sales
C. Cash
D. Salary - Commission received is a type of:
A. Expense
B. Income
C. Liability
D. Asset - The credit balance in a bank statement means:
A. Overdraft
B. Insufficient funds
C. Bank owes the customer
D. Customer owes the bank - Double entry principle states:
A. Debit = Credit
B. Assets = Liabilities
C. Income = Expenses
D. Sales = Purchases
Theory Questions
- Explain the term “Bank Reconciliation Statement” and highlight four reasons why it is prepared.
- State and explain five differences between the bank statement and the cashbook.
- Define final accounts of a sole trader and list the components that make up the final accounts.
- **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**
- What is a balance sheet? State three major sections of a balance sheet and provide one example under each.
- Define opening entry. Explain how it is used in recording the assets and liabilities of a business at the start of the year.
- State and explain four functions of a bank account to a sole trader.
- **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**
- Explain the following accounting terms with one example each:
a. Drawings
b. Prepaid expenses
c. Accrued income
d. Bad debt
e. Depreciation - List and explain any five limitations of bank reconciliation statements in modern accounting practices.
Objective Answers
- C — Banks prepare the bank statement for their customers.
- B — A dishonoured cheque is one the bank refuses to pay.
- B — Current accounts do not earn interest.
- D — Bank reconciliation matches the cashbook with the bank statement.
- C — An overdraft occurs when more money is withdrawn than is in the account.
- A — Bank transactions are recorded in the cashbook.
- B — Bank charges appear as debits in the bank statement.
- C — The trading account shows gross profit.
- C — Carriage inwards is added to purchases.
- B — Rent is an expense.
- C — The balance sheet reflects the financial position of a business.
- B — Capital appears on the credit side of the balance sheet.
- A — Accrued income is an asset because it is income yet to be received.
- C — Drawings reduce the owner’s capital.
- B — Income increases capital.
- C — Capital = Total Assets – Liabilities.
- B — Opening entries are made at the start of a new financial year.
- C — Opening entry introduces opening balances into the books.
- C — Capital accounts are found in the private (general) ledger.
- A — Bad debts are treated as expenses.
- B — Credit sales are entered in the sales day book.
- B — Financial statements show profit or loss.
- B — A wholesaler stores goods before resale.
- C — Middlemen are intermediaries in the chain of distribution.
- C — Poor infrastructure affects distribution.
- C — Bank reconciliation statement is used to reconcile discrepancies.
- B — It helps reconcile bank and cashbook differences.
- C — Fixed assets like machinery appear in the balance sheet.
- B — Returns inwards reduce sales revenue.
- C — Prepaid rent is an asset because it’s a payment in advance.
- C — Revenue is the earnings of a business.
- B — Net profit is added to capital in the balance sheet.
- C — Equipment is a fixed, not a current, asset.
- A — A bank statement shows all transactions in a customer’s account.
- A — Loans are liabilities to be repaid.
- C — Depreciation is charged on fixed assets.
- C — Cash is a real account representing physical assets.
- B — Commission received is income.
- C — Credit balance in the bank statement means the bank owes the customer.
- 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:
- To detect errors in either the cashbook or bank statement.
- To identify unpresented cheques that have not been cashed by the payee.
- To identify uncredited lodgements, i.e., deposits not yet reflected by the bank.
- To update the cashbook for items like bank charges or interest that were not recorded.
2. Differences Between Bank Statement and Cashbook
| Bank Statement | Cashbook |
|---|---|
| Sent by the bank | Prepared by the business |
| Shows the bank’s view of the account | Shows the business’s view |
| Credit balance means money available | Debit balance means money available |
| Prepared monthly/periodically | Recorded daily or as needed |
| Includes charges, interest, etc. | May exclude bank charges if not updated |
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:
- Trading Account – to determine gross profit or loss.
- Profit and Loss Account – to determine net profit or loss.
- Balance Sheet – to show assets, liabilities, and capital.
4. Trading Account
Trading Account for the Year Ended
| Particulars | ₦ | Particulars | ₦ |
|---|---|---|---|
| Opening Stock | 10,000 | Sales | 75,000 |
| Purchases | 40,000 | Less: Returns Inward | (5,000) |
| Add: Carriage Inwards | 2,000 | Net Sales | 70,000 |
| Closing Stock | 15,000 | ||
| Cost of Goods Sold (COGS) | 52,000 | Gross Profit | 33,000 |
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:
- Assets – e.g., Equipment, Cash.
- Liabilities – e.g., Loans, Creditors.
- 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
- Safe custody of funds – protects against theft or fire.
- Enables transactions – payments and receipts via cheques or transfers.
- Access to bank loans/overdrafts – helps with capital needs.
- Records for accounting – statements aid in preparing final accounts.
8. Balance Sheet
Balance Sheet as at Today’s Date
| Assets | ₦ |
|---|---|
| Cash | 10,000 |
| Debtors | 15,000 |
| Equipment | 35,000 |
| Total Assets | 60,000 |
| Liabilities and Capital | ₦ |
|---|---|
| Creditors | 20,000 |
| Capital | 80,000 |
| Less: Total Assets | (60,000) |
| Balance | 20,000 |
[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
- Does not detect all fraud – especially internal manipulation.
- Delayed statements – hinder timely reconciliation.
- Errors in both records – may cancel each other out.
- Unidentified transactions – may require clarification from the bank.
- 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!
