WAEC Accounting 2013 Past Questions & Answers

A two-column cash book has columns for cash and bank transactions on both the debit and credit sides. To create a three-column cash book, a third column is added on each side specifically to record cash discounts. The debit side records 'discount allowed' and the credit side records 'discount received', making the discount column the key distinguishing feature.

Common mistake: Students might mistakenly choose the bank column because it distinguishes a two-column from a single-column cash book, but the question specifically asks about the difference between a two-column and a three-column cash book.

A lodgment of cash into the bank is a key transaction that is verified during a bank reconciliation. This process involves comparing the entries in the business's cash book, like this deposit, with the entries on the bank statement. Because this lodgment must be checked and matched between the two records, it serves as a practical example of an item dealt with in bank reconciliation.

Common mistake: Students may be tempted to choose 'contra entry' because that is the correct term for the double entry within the cash book, but the transaction is also a fundamental item that is confirmed during the bank reconciliation process.

In double-entry bookkeeping, accounts for liabilities, income, and capital normally have credit balances. This is because increases in these items are recorded on the credit side of the account. For example, when a business receives a loan (a liability) or makes a sale (an income), the respective accounts are credited. Therefore, a credit balance shows that the business either owes money (a liability) or has earned money (an income).

Common mistake: Students often mistakenly choose option A because while they correctly remember that liabilities have credit balances, they get confused and think expenses also have credit balances, when in fact, expenses have debit balances.

A Trial Balance is a statement, not an account. It is a list of all debit and credit balances extracted from the ledger to check the arithmetical accuracy of the bookkeeping. An account is a formal record of transactions within the ledger (e.g., Cash Account), whereas the Trial Balance is a summary prepared from those accounts at a specific date.

Common mistake: Students often confuse a Trial Balance with a ledger account because it has debit and credit columns, but it is only a summary statement, not a part of the double-entry system itself where transactions are recorded.

The capital of a business represents the owner's investment. Drawings are when the owner takes money from the business for personal use. This directly reduces the owner's investment (capital) and also reduces the business's assets (in this case, money in the bank). While expenses like wages also eventually reduce capital, drawings are a direct and immediate reduction of the capital account.

Common mistake: Students often mistakenly choose 'paying wages' because they know expenses reduce profit and therefore capital, but they forget that drawings are a direct reduction of the capital account itself.

The correct answer is C because it shows the logical order of the accounting cycle. First, you must collect the financial data from source documents like receipts (III). Next, you record this information in the books of account (I). After recording, you prepare and present the information in financial statements (II), and finally, you analyze these statements to make informed decisions (IV).

Common mistake: Students often mistakenly choose option A, thinking that 'recording' is the first step, but they forget that you must first 'collect' the business transaction documents before you can record them.

When a cheque from a customer is dishonoured (bounces), the original entry recording the money must be reversed. This is done using the double-entry system by crediting the bank column of the cash book (to reduce the bank balance) and debiting the customer's account (to show they still owe the money). The transaction is therefore a double entry that involves an adjustment in the cash book.

Common mistake: Students often choose option B ('credited in the cash book') because this is the specific action taken in the cash book, but this answer only describes one part of the complete double-entry transaction.

The imprest system starts with a fixed amount of cash called a float, which is GHc 120 in this question. The petty cashier then spends from this float. To find the cash balance remaining before reimbursement, you subtract the total amount spent from the initial float. Therefore, the calculation is GHc 120 (float) - GHc 84 (spent) = GHc 36.

Common mistake: Students often mistakenly choose GHc 84, confusing the remaining cash balance with the amount spent, which is the sum that needs to be reimbursed to restore the float.

Books of original entry, also known as journals or day books, are where transactions are first recorded from source documents. The Cash Book, Returns Outwards Journal, and General Journal are all examples of this. The Purchases Ledger, however, is a principal book containing the individual accounts of creditors, where entries are posted *from* the Purchases Day Book (a book of original entry).

Common mistake: A common mistake is confusing the Purchases Ledger with the Purchases Journal; the Purchases Journal is a book of original entry for credit purchases, while the Purchases Ledger is the collection of individual supplier accounts.

The current ratio measures a company's ability to pay its short-term debts and is calculated by dividing Current Assets by Current Liabilities. Using the figures provided, we calculate ₦280,000 (Current Assets) divided by ₦150,000 (Current Liabilities). This gives an answer of 1.8667, which is rounded to 1.87 and expressed as the ratio 1.87 : 1.

Common mistake: Students often make the mistake of choosing option B by incorrectly dividing Current Liabilities by Current Assets, which reverses the formula.