Free Financial Accounting 1 Revision

1. The aggregation of accounting information into financial statements is referred to as (a)._________accounting, whereas (b).___________ accounting refers to the internal processes used to account for business transaction.

2. Accounting policies refer to the specific principles, bases, conventions, rules and practices applied by an entity in preparing and presenting financial statements. Which of the following are examples of accounting policies?

3. An invoice that is entered in accounts receivable as kshs 20,000 instead of kshs 2,000 is an example of _____________error.

4. Luka, a civil servant, has plans to be self-employed. As at 31 may 2019, Luka had saved kshs 360,000 to start a business. He started his business on Kisumu on June 1, 2019.His transactions for the month of June were as follows:

Required
A three-column cash book to record the transactions in the month of June 2019 bringing down balances to 1 July 2019.

5. Meshak and Kain are trading as partners sharing profits and losses in the ratio of 3:2 respectively. The following trial balance was extracted from their partnership records as at 31 December 2020 :

Additional information
i. Inventory was valued at kshs 5.4 million as at 31 December 2020.
ii. Kain is entitled to a salary of kshs 135,000 per month.
iii. Interest is charged on cash drawings at the rate of 7.5% per annum.
iv. Interest on capital account balances is allowed at 6 per annum.
v. Goods taken by partners for personal use which had not been recorded amounted to kshs 450,000 and kshs 45,000 for Meshak and Kain respectively.
vi. Depreciation per annum on non-current assets is to provided as follows:

vii. As at 31 December 2020, rent and rates outstanding amounted to kshs 54,000, while salaries paid in advance amounted to kshs 585,000.
viii. Allowance for doubtful debts is to be maintained at 5% of the outstanding trade receivables
Required
a. Income statement for the year ended 31 December 2020.
b. Partners current accounts.
c. Statement of financial position as at 31 December 2020.

6. The __________ states that a company's total assets are equal to the sum of its liabilities and its shareholders' equity.

7. The following information was extracted from the books of Berry limited as at 30 June 2018:

Additional information
i. Accrued administrative expenses as at 30 June 2019 amounted to kshs 540,000.
ii. Sales and distribution cost prepaid as at 30 June 2019 amounted to kshs 1,080,000.
iii. Allowance for doubtful debts is to increase by kshs 1,080,000.
iv. Corporate tax is estimated at kshs 32.4 million.
v. A half of the annual interest on debentures was outstanding as at 30 June 2019.
vi. Depreciation is to be provided as follows:

vii. The directors have proposed the following:
• A dividend be paid to preference shareholders.
• A dividend os kshs 2 per share to the ordinary shareholders after transfer of kshs 5.4 million to the general reserve.

Required
a. Income statement as at 30 June 2019.
b. Statement of financial position as at 30 June 2019.

8. The original document that contains the details of a business transaction is called a ______

9. There are three inventory accounting methods used to calculate the value of the goods you have on hand at the end of the period as well as the cost of the goods that you sold. The (a)___________method assumes that the first inventories bought are the first ones to be sold, and that inventories bought later are sold later. The (b)_________method assumes that the last inventories bought are the first ones to be sold, and that inventories bought first are sold last, while the (c)________method assumes that we sell all our inventories simultaneously and working out an average cost per unit at each point in time after a purchase.

10. There are several reasons why a company might not wish to distribute all its profits to shareholders .Which of the following is one of the reasons?

11. TRUE OR FALSE: Long term debt is a noncurrent asset.

12. Under the double-entry accounting method, every transaction is recorded two accounts; a debit and a credit. Debit entries results in _______.

13. Xi, Yiu and Zao are partners’ operating a business under the name Baduli. The trial balance for the partnership as at 31 march 2021 was as follows:

Additional information
i. Interest on capital balance is allowed at 12% per annum.
ii. The advertising expense includes a payment of kshs 1,169,000 which was to cover half a year to 31 may 2021.
iii. Depreciation has been provided for motor vehicles at 10% on the cost amount. However, depreciation on furniture & fittings is yet to be provided for at 12.5% on the net book values.
iv. Staff salaries outstanding as at 31 march 2021 were kshs 217,000.
v. The partnership had made the following transactions but not yet adjusted the relevant trial balance ledgers:
• Payment of trade payables of kshs 195,000 by cheque and lshs 108,000 by cash.
• The accountant has banked kshs 320,000
• Payment of ent expense of kshs 182,000 by cheque.
vi. Xi, Yiu and Zao were entitles to salaries of kshs 779,000, kshs 606,000, and kshs 693,000 respectively.
vii. Profits and losses are shared among Xi, Yiu and Zao in the ratio of 2:1:3 respectively.
Required
a. Income statement for the year ended 31 march 2021.
b. Partners’ current accounts as at 31 march 2021.
c. Statement of financial position as at 31 march 2021.

14. Mawingu Enterprises shows a difference on their trial balance of kshs 29.3 million. This was posted to a suspense account so that the accounts for the year ended 31 march 2020 could be prepared. The following statement of financial position was produced:

On checking the books to eliminate the suspense account, the following errors were found:
a. The debit side of the cash book was undercast by kshs 20 million.
b. A credit item of kshs 10 million in the cash book on account of a new building has not been posted to the nominal ledger.
c. The purchase day book has been summarized for posting to the nominal ledger but an item of purchases of kshs 200,000 has been entered as kshs 2 million and a further transport item of kshs 900,000 has been entered as kshs 90,000.
d. An item of rent received amounting to kshs 90,000 was posted twice to the nominal ledger from the cash book.
e. The debt side of the debtors’ control account was undercast by kshs 200,000.
f. On reconciling the bank statement with the cash book, it was discovered that bank charges of kshs 6.5 million had not been entered in the cash book.
g. Depreciation of motor vehicles was undercharged by kshs 1 million.
h. Inventories were undervalued by kshs 2.5 million.
i. Supplies invoices totaling kshs 4.22 million for goods included in the inventories had been omitted from the books.
Required
a. Journal entries necessary to eliminate the balance on the suspense account.
b. Suspense account duly balanced
c. Statement of financial position as at 31 march 2020 after correcting the errors.

15. Petty Cash books are accounting books used for recording expenses which are small and of little value. There are two types of petty cash books; the (a) _________petty cash book which contains many money columns to record day to day expenditures, and (b), the ________petty cashbook, where a fixed account balance is established and refunded as needed when money is withdrawn for expenses.