SCHOOLINGSS1 Financial Accounting 3rd Term Questions and Answers

Financial Accounting

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!