JAMB Accounting 2024 Past Questions & Answers

This question is a direct definition derived from the fundamental accounting equation, which is Assets = Capital + Liabilities. By rearranging this formula to solve for capital, we get Capital = Assets - Liabilities. This means that capital is the value remaining after subtracting what the business owes (liabilities) from what it owns (assets).

Common mistake: Students might mistakenly choose 'provision' because it is an accounting term related to liabilities, but a provision is an amount set aside for a future obligation, not the owner's equity.

The purchases day book, also known as the purchases journal, is the specific book of original entry used to record all credit purchases of goods intended for resale. Since the transaction involves buying goods on credit, it must first be recorded here before being posted to the ledger. The cash book is for cash transactions, while the sales day book is for credit sales.

Common mistake: Students often mistakenly choose the sales day book, confusing the act of buying goods on credit (purchases) with selling goods on credit (sales).

Fictitious assets, in this context, refer to assets that are not physical or tangible. Goodwill is the value of a company's brand name, good customer relations, and reputation, which cannot be physically touched, making it an intangible asset. Unlike stock (which is a physical good) or an overdraft (which is a liability), goodwill fits the description of a non-physical asset. Therefore, it is considered the correct example among the choices provided.

Common mistake: Students often mistakenly choose 'stock' because it is a common asset, but they forget that stock is a tangible (physical) asset, not a fictitious or intangible one.

A debenture is a type of long-term loan certificate issued by a company to raise funds from the public, with a promise to pay interest and repay the principal at a future date. Public limited liability companies (PLCs) commonly use debentures as a major source of additional, long-term finance for expansion or projects. The other options are incorrect; a cheque is a payment instrument, while accumulated and consolidated funds relate to not-for-profit and government accounting respectively.

Common mistake: Students might mistakenly choose 'consolidated fund' because they confuse a 'public' limited company with the 'public sector' or government, where this term is correctly used.

The acid-test ratio, also known as the quick ratio, is the best measure of a company's short-term solvency. This is because it measures the ability of a company to pay its immediate debts (current liabilities) using its most liquid assets, without having to sell its stock. Since stock can be difficult to convert to cash quickly, excluding it gives a more realistic picture of a company's immediate ability to pay its bills.

Common mistake: Students often mistakenly choose the current ratio because it also measures short-term liquidity, but they forget that the acid-test ratio is a stricter and more immediate test of solvency as it excludes less liquid stock.

When a business buys an asset like a machine, the value of its assets increases. According to the rules of double entry, an increase in an asset is recorded with a debit entry. Since the machine was bought on credit, the business now owes the supplier, so the supplier's account (a liability) is credited; therefore, the Machinery account is debited.

Common mistake: Students often mistakenly choose 'creditor' because they know a creditor is involved, but they forget that the creditor's account should be credited, not debited, to show an increase in what the business owes.

According to the principle of double entry, for every debit entry, there must be a corresponding credit entry. When cash is paid to John, John is the receiver, so his account is debited. The business is giving out cash, which is an asset, so the Cash account must be credited to show the decrease in cash.

Common mistake: Students might mistakenly choose 'bank' because they confuse a cash payment with a payment made from the business's bank account.

An error of principle occurs when a transaction is recorded in the wrong class of account, violating a fundamental accounting principle. In this question, commission is an expense, but it was wrongly debited to the debtors account, which is an asset. This action incorrectly treats an expense as an asset, which is a clear breach of accounting principles.

Common mistake: Students often mistakenly choose 'error of commission' because the transaction involves a commission, but an error of commission means posting to the wrong account within the same class (e.g., a different debtor's account), not to a completely different class of account.

According to the rules of double-entry, all expense accounts (like rents, rates, and advertising) and contra-revenue accounts (like return inwards) have debit balances. Share premium, on the other hand, is a capital reserve created when a company sells its shares for more than their face value. As a form of capital or equity, it has a credit balance, making it the correct exception.

Common mistake: Students may mistakenly choose 'return inwards', thinking it should have a credit balance like sales, but it is a contra-revenue account and therefore has a debit balance.

In public sector (government) accounting, the budget approved by the legislature is divided into categories called heads and sub-heads for different ministries and projects. The specific amount of money authorised and allocated to each of these heads for spending is officially known as a 'vote'. This vote represents the legal limit of expenditure for that particular purpose during the financial year.

Common mistake: Students often mistakenly choose 'imprest' because it is also a term for money given out in an office, but imprest specifically refers to a small amount for petty cash expenses, not the main budget allocation.