WAEC Accounting 2014 Past Questions & Answers

A debit note is a document sent by a buyer to a seller to officially request a credit for returned goods or to correct an overcharge. It serves as the source document for recording an entry in the Purchases Returns Day Book (also called Returns Outwards Journal). This entry reduces the amount the business owes to its supplier.

Common mistake: Students often confuse this with an invoice, but an invoice is the source document used to record the initial credit purchase in the Purchases Day Book, not for recording returns.

In accounting, a supplier is a person or business from whom we purchase goods on credit, so they are also called creditors. The purchases ledger, also known as the creditors' ledger, is a subsidiary book specifically used to keep the individual accounts of all suppliers. This helps a business track how much it owes to each person it has bought goods from.

Common mistake: Students often confuse the purchases ledger with the sales ledger, which is used to record the accounts of customers (debtors) to whom the business sells goods.

The imprest system is a method of controlling petty cash expenses. A fixed amount of money, called a 'float', is given to the petty cashier at the start. At the end of the period, the main cashier reimburses the petty cashier with the exact amount of money that was spent, bringing the cash balance back up to the original float. Therefore, the petty cashier regularly begins each new period with the same fixed amount of money.

Common mistake: Students may mistakenly choose option A, forgetting that the petty cashier is only responsible for small, minor expenses, not all the expenses of the business.

The Profit and Loss Account is prepared to calculate the net profit or loss of a business. All incomes and gains are recorded on the credit side, while all expenses and losses are on the debit side. Discounts received is an income to the business, so it is correctly shown as a credit entry.

Common mistake: Students often mistakenly choose 'discounts allowed' because they confuse it with 'discounts received', forgetting that allowing a discount is an expense (a debit) while receiving one is an income (a credit).

The petty cash book is the correct answer because it is the subsidiary book used to record small, everyday cash expenses like buying stationery or paying for transport. These transactions involve the direct movement of physical cash. The other books listed, such as the sales day book and purchases day book, are used to record credit transactions, where no cash is exchanged at the time of the transaction.

Common mistake: Students often mistakenly choose the sales or purchases day book, forgetting that these books are specifically for recording credit transactions, not immediate cash movements.

When a business first receives a cheque from a customer, it debits the Bank Account and credits the Customer's Account. A dishonoured cheque means the bank has refused to pay the money, so the initial entry must be reversed. To do this, you debit the Customer's Account to show they still owe the money, and you credit the Bank Account to show the money was never actually received.

Common mistake: Students often mistakenly choose option B because that is the correct entry for receiving a valid cheque, but they forget that a dishonoured cheque requires this original entry to be reversed.

In accounting, 'turnover' is another name for the total sales revenue a business generates from its main operations over a period. Net turnover specifically means the total sales made, after deducting any returns from customers (returns inwards). Therefore, the term 'net turnover' is simply referred to as sales, which is the first item used to calculate gross profit in the Trading Account.

Common mistake: Students often mistakenly choose 'profits' because they confuse the total money received from sales (turnover) with the final profit, which is calculated only after deducting all costs and expenses.

When a customer pays a cheque directly into the business's bank account, the bank will credit the account immediately, and it will appear on the bank statement. However, the business owner may not be aware of this payment until they receive the bank statement, so it will not yet be recorded in their cash book. This timing difference is a classic reason for a disagreement between the cash book and the bank statement, which is resolved using a bank reconciliation statement.

Common mistake: Students might mistakenly choose option A, forgetting that a credit sale does not affect the bank account or cash book until the customer actually pays the money.

A compensating error occurs when two or more mistakes are made in the books of account in such a way that they cancel each other out. In this question, the Purchases account was overstated by N200, while the Wages account was understated by the same N200. The effect of one error neutralizes the effect of the other, meaning the trial balance would still appear to balance correctly despite the mistakes.

Common mistake: Students might mistakenly choose 'error of commission' because a wrong total was entered, but they miss that the defining feature here is how two separate errors cancel each other out.

The Journal Proper, also known as the General Journal, is used to record transactions that do not fit into any other special journal or day book. The disposal of a fixed asset is an infrequent and non-routine transaction, unlike the regular sale of goods. Therefore, it is correctly recorded in the Journal Proper to remove the asset from the books and account for any profit or loss.

Common mistake: Students often mistakenly choose the Sales Day Book because they associate 'disposal' with a sale, but this book is only for recording the credit sales of trading goods, not fixed assets.

The straight-line method spreads the cost of an asset evenly over its useful life. To calculate the annual depreciation, you first find the total amount to be depreciated by subtracting the residual value from the cost (N85,000 - N5,000 = N80,000). Then, you divide this amount by the asset's useful lifespan $(N80,000 / 10 years)$, which gives you N8,000 per year.

Common mistake: The most common mistake is to forget to subtract the residual value from the cost before dividing, leading to the incorrect calculation of N85,000 / 10 = N8,500 (Option B).

First, calculate the annual depreciation using the straight-line method formula: (Cost - Residual Value) / Useful Life. This gives (N85,000 - N5,000) / 10 years = N8,000 per year. The question asks for accumulated depreciation as at $31/12/2013$, which is for two full years (2012 and 2013). Therefore, the total accumulated depreciation is N8,000 multiplied by 2, which equals N16,000.

Common mistake: The most common mistake is choosing option D (N8,000), which happens when a student correctly calculates the depreciation for one year but forgets to accumulate it for the two years required by the question.

An error of principle occurs when a transaction is recorded in the wrong class of account, even though the correct debit and credit rules are followed. This means a fundamental accounting principle has been violated, such as treating a capital expenditure (e.g., buying a machine) as a revenue expenditure (e.g., paying for repairs). Option A correctly identifies this as making an entry in the wrong class of account.

Common mistake: Students might mistakenly choose Option D, which describes an error of original entry, because both an error of principle and an error of original entry are errors that do not affect the balancing of the trial balance.

The general journal, also known as the journal proper, is the book of original entry for transactions that do not belong in any other special journal. The purchase of goods on credit goes in the purchases day book, credit sales in the sales day book, and returns inwards in the returns inwards day book. Since the acquisition of a fixed asset is not a regular trading activity, it is correctly recorded in the general journal.

Common mistake: Students often mistakenly choose 'Purchase of goods', forgetting that this refers to goods for resale which are recorded in the Purchases Day Book, not the General Journal.

Carriage outward is the transport cost a business pays to deliver goods to its customers. Since this expense is incurred to sell and distribute the products, it is correctly classified as a selling and distribution expense in the Profit and Loss Account. These are expenses that are necessary to make sales and get the goods to the final consumer.

Common mistake: Students often confuse carriage outward with carriage inward, which is a trading expense for bringing goods into the business.

The correct option is D because Akpan Electronic Enterprises is a business that deals in electronics. Therefore, the ceiling fans purchased are considered goods bought for the purpose of resale to customers. In accounting, items bought by a business for resale are classified as stock (or inventory), not as fixed assets or expenses.

Common mistake: Students often mistakenly choose 'an acquisition of fixed asset' because a fan is a durable item, but they fail to consider that for an electronics business, these items are stock for resale, not for use in the office.

The ledger is divided into different books based on the type of account. The Nominal Ledger contains nominal accounts (which are for incomes and expenses) and personal accounts (which are for debtors and creditors). In this question, the Sales account (income) and Rent and rates account (expense) are nominal accounts, while Sanison's account (debtor) is a personal account, so they all belong in the Nominal Ledger. The Motor vehicle account is a real account (an asset), which is kept in a separate Real Ledger, not the Nominal Ledger.

Common mistake: A common mistake is to choose option C, assuming the Nominal Ledger contains all real and nominal accounts, but this is incorrect as the Motor Vehicle account is a real account (asset) and is kept in a separate Real Ledger.

In a manufacturing account, prime cost is the total of all direct costs. These are the costs directly related to making a product, like raw materials (direct materials) and the wages of factory workers (direct labour). When you add all these direct costs together, the total is called the prime cost, which is the first major calculation in the account.

Common mistake: Students often mistakenly choose 'production cost', but this is incorrect because production cost includes both the prime cost and all the factory overheads (indirect costs).

Net profit is the final profit a business makes after all costs and expenses have been paid. First, you find the gross profit by subtracting the cost of sales from the sales revenue. Then, you subtract all other operating expenses like rent, salaries, and electricity from the gross profit to get the net profit, which matches option D.

Common mistake: Students often mistakenly choose option C, which is the definition of gross profit, not net profit.

A control account is the correct answer because it is a summary account in the general ledger that checks the accuracy of a subsidiary ledger (like the sales or purchases ledger). The total balance of the control account must equal the sum of all the individual balances in the subsidiary ledger, making it a key part of a self-balancing ledger system. This feature allows it to independently verify the correctness of the detailed accounts it represents.

Common mistake: Students often mistakenly choose a debtor's or creditor's account because control accounts are used to manage them, but the individual accounts themselves are not the self-balancing summary account.

This question tests your understanding of the relationship between sales, cost of sales, and gross profit, specifically with profit margins. Although the question uses the term 'mark-up', the correct answer is derived by treating the 50% as a 'margin' on sales. To find the gross profit, you calculate 50% of the sales value. The calculation is: Gross Profit = $50/100$ x GHc 2,160,000, which equals GHc 1,080,000.

Common mistake: The most common mistake is to correctly calculate a 50% mark-up on cost $(i.e., Sales x 50/150)$, which gives GHc 720,000, without realizing the question's intended answer is based on a 50% margin on sales.

To find the cost of sales, you first need to calculate the profit. In this context, the 50% mark-up is treated as a margin (profit as a percentage of sales), so the profit is 50% of the selling price: 0.50 x GHc 2,160,000 = GHc 1,080,000. Since Sales = Cost of Sales + Profit, you can find the cost of sales by subtracting the profit from the sales figure: GHc 2,160,000 - GHc 1,080,000 = GHc 1,080,000.

Common mistake: The most common mistake is to calculate mark-up as a percentage of cost (i.e., dividing sales by 1.5), which would incorrectly lead to GHc 1,440,000.

In accounting for a manufacturing business, expenses are grouped by their function, such as production, administration, or selling. Administrative expenses are the costs of running the office, like office electricity, stationery, and insurance. Discounts allowed is an expense related to selling goods, as it is given to customers to encourage them to pay quickly, so it is classified as a selling and distribution expense.

Common mistake: Students may confuse 'Discounts allowed' with a general business expense, but it must be specifically classified as a selling and distribution cost because it is directly related to the sales function.

The Provision for Depreciation account is used to accumulate the total depreciation on an asset and normally has a credit balance. When the asset is sold, this accumulated balance must be closed and transferred out. To close an account with a credit balance, you must debit it, so we debit the Provision for Depreciation Account. The corresponding credit is made to the Asset Disposal account, which is a temporary account used to gather all costs and proceeds to calculate the profit or loss on the sale.

Common mistake: Students often choose option A, incorrectly reversing the entries because they forget that to close an account with a credit balance (like Provision for Depreciation), you must debit it.

The imprest system requires the petty cash float to be restored to its original amount at the end of a period. The original imprest amount is D28,000, and the cash remaining is D5,000. To find the amount needed for restoration, you must subtract the remaining cash from the original imprest, which equals the amount spent: D28,000 - D5,000 = D23,000.

Common mistake: A common mistake is to add the remaining balance to the imprest (D28,000 + D5,000), forgetting that restoration only reimburses the exact amount that was spent.