Question
Step by step and clearly answer the questions below?
1 What is the main purpose of accounting?
2 List any two users of accounting information.
3 Define a Sole Trader.
4 What is the meaning of “faithful representation” in accounting?
5 Identify any two elements of financial statements.
6 A business purchases goods worth K15, 000 and pays K5, 000 in cash. Record the transaction in the journal.
7 State the rule of double-entry for an asset purchased.
8 From the following balances, prepare a trial balance:
Cash: K4,000
Capital: K10,000
Inventory: K3,000
Sales: K7,000
Purchases: K5,000
9 Prepare a Trading, Profit and Loss Account from the following:
Sales: K25,000
Cost of Sales: K10,000
Rent: K3,000
Wages: K4,000
Income Statement
10 Machinery bought for K20, 000, expected life: 5 years, no residual value. Calculate depreciation using straight-line method.
Distinguish between capital expenditure and revenue expenditure.
12 K500 is owed by a customer who has gone bankrupt. What type of adjustment is this, and how is it recorded?
13 If rent of K1, 200 for December is unpaid at year-end, what adjustment is needed?
14 If insurance of K2, 400 was paid in advance for 12 months, but only 3 months relate to this year, what is the prepayment adjustment?
1 What is the main purpose of accounting?
2 List any two users of accounting information.
3 Define a Sole Trader.
4 What is the meaning of “faithful representation” in accounting?
5 Identify any two elements of financial statements.
6 A business purchases goods worth K15, 000 and pays K5, 000 in cash. Record the transaction in the journal.
7 State the rule of double-entry for an asset purchased.
8 From the following balances, prepare a trial balance:
Cash: K4,000
Capital: K10,000
Inventory: K3,000
Sales: K7,000
Purchases: K5,000
9 Prepare a Trading, Profit and Loss Account from the following:
Sales: K25,000
Cost of Sales: K10,000
Rent: K3,000
Wages: K4,000
Income Statement
10 Machinery bought for K20, 000, expected life: 5 years, no residual value. Calculate depreciation using straight-line method.
Distinguish between capital expenditure and revenue expenditure.
12 K500 is owed by a customer who has gone bankrupt. What type of adjustment is this, and how is it recorded?
13 If rent of K1, 200 for December is unpaid at year-end, what adjustment is needed?
14 If insurance of K2, 400 was paid in advance for 12 months, but only 3 months relate to this year, what is the prepayment adjustment?
Answers
GPT-4o mini
Sure! Let’s go through your questions one by one.
### 1. What is the main purpose of accounting?
The main purpose of accounting is to systematically record, report, and analyze financial transactions of an organization. This helps stakeholders, such as management, investors, and regulators, assess the financial performance and position of the business, make informed decisions, and ensure compliance with financial regulations.
### 2. List any two users of accounting information.
1. **Management**: Internal users who rely on accounting information for decision-making, planning, and controlling operations.
2. **Investors**: External users who assess the financial health of a business to make investment decisions.
### 3. Define a Sole Trader.
A Sole Trader (or Sole Proprietorship) is a business owned and operated by a single individual. The owner is personally liable for all debts and obligations of the business, and they retain all profits generated by the business.
### 4. What is the meaning of “faithful representation” in accounting?
“Faithful representation” refers to the accounting principle that states that financial information must represent the economic phenomena it purports to represent. This means that the information should be complete, neutral, and free from error, providing a true and fair view of the financial position of an entity.
### 5. Identify any two elements of financial statements.
1. **Assets**: Resources owned by the business that provide future economic benefits.
2. **Liabilities**: Obligations owed by the business to other parties.
### 6. A business purchases goods worth K15, 000 and pays K5, 000 in cash. Record the transaction in the journal.
**Date** | **Account Title** | **Debit (K)** | **Credit (K)**
---|-------------------------|-----------------|----------------
[Date] | Purchases | 15,000 |
| Cash | | 5,000
| Accounts Payable | | 10,000
### 7. State the rule of double-entry for an asset purchased.
When an asset is purchased, the rule of double-entry states that the asset account should be debited (increased) and either the cash account (if paid in cash) should be credited (decreased) or an accounts payable or loan account (if purchased on credit) should be credited (increased).
### 8. From the following balances, prepare a trial balance:
**Trial Balance as of [Date]**
| Account Title | Debit (K) | Credit (K) |
|----------------------|---------------|-------------|
| Cash | 4,000 | |
| Capital | | 10,000 |
| Inventory | 3,000 | |
| Sales | | 7,000 |
| Purchases | 5,000 | |
| **Total** | **12,000** | **17,000** |
### 9. Prepare a Trading, Profit and Loss Account from the following:
**Trading and Profit and Loss Account for the Year Ended [Date]**
**Trading Account:**
| Particulars | Amount (K) |
|----------------------------|--------------|
| Sales | 25,000 |
| Less: Cost of Sales | (10,000) |
| **Gross Profit** | **15,000** |
**Profit and Loss Account:**
| Particulars | Amount (K) |
|----------------------------|--------------|
| Gross Profit | 15,000 |
| Less: Rent | (3,000) |
| Less: Wages | (4,000) |
| **Net Profit** | **8,000** |
### 10. Machinery bought for K20, 000, expected life: 5 years, no residual value. Calculate depreciation using the straight-line method.
**Depreciation per year = (Cost - Residual Value) / Useful life**
Depreciation = (20,000 - 0) / 5 = K4,000 per year.
### Distinguish between capital expenditure and revenue expenditure.
- **Capital Expenditure**: This refers to the funds used by a company to acquire, upgrade, and maintain physical assets such as property, plants, and equipment. These expenditures are capitalized and result in the acquisition or enhancement of long-term assets.
- **Revenue Expenditure**: This involves the funds spent on the day-to-day operations of the business which does not result in the acquisition of long-term assets. It typically includes expenses like rent, wages, and utilities, and is charged in full to the income statement in the period incurred.
### 12. K500 is owed by a customer who has gone bankrupt. What type of adjustment is this, and how is it recorded?
This is a **bad debt adjustment**. It is recorded by debiting the bad debt expense account and crediting accounts receivable.
**Journal Entry:**
| Account | Debit (K) | Credit (K) |
|---------------------------|---------------|-------------|
| Bad Debt Expense | 500 | |
| Accounts Receivable | | 500 |
### 13. If rent of K1, 200 for December is unpaid at year-end, what adjustment is needed?
An adjustment for accrued rent expense is needed.
**Journal Entry:**
| Account | Debit (K) | Credit (K) |
|---------------------------|---------------|-------------|
| Rent Expense | 1,200 | |
| Accrued Rent Liability | | 1,200 |
### 14. If insurance of K2, 400 was paid in advance for 12 months, but only 3 months relate to this year, what is the prepayment adjustment?
The prepayment adjustment would involve recognizing the portion of the insurance that is an expense for the current year and deferring the remaining amount as a prepaid expense.
**Calculation:**
For 3 months of insurance:
Total insurance = K2,400
Monthly insurance = K2,400 / 12 = K200
For 3 months = K200 * 3 = K600 (this is the expense for the current year).
The remaining K1,800 (K2,400 - K600) would be recorded as a prepaid insurance asset.
**Journal Entry:**
| Account | Debit (K) | Credit (K) |
|---------------------------|---------------|-------------|
| Insurance Expense | 600 | |
| Prepaid Insurance | | 1,800 |
I hope these answers help clarify your accounting questions! Let me know if you need further assistance.
### 1. What is the main purpose of accounting?
The main purpose of accounting is to systematically record, report, and analyze financial transactions of an organization. This helps stakeholders, such as management, investors, and regulators, assess the financial performance and position of the business, make informed decisions, and ensure compliance with financial regulations.
### 2. List any two users of accounting information.
1. **Management**: Internal users who rely on accounting information for decision-making, planning, and controlling operations.
2. **Investors**: External users who assess the financial health of a business to make investment decisions.
### 3. Define a Sole Trader.
A Sole Trader (or Sole Proprietorship) is a business owned and operated by a single individual. The owner is personally liable for all debts and obligations of the business, and they retain all profits generated by the business.
### 4. What is the meaning of “faithful representation” in accounting?
“Faithful representation” refers to the accounting principle that states that financial information must represent the economic phenomena it purports to represent. This means that the information should be complete, neutral, and free from error, providing a true and fair view of the financial position of an entity.
### 5. Identify any two elements of financial statements.
1. **Assets**: Resources owned by the business that provide future economic benefits.
2. **Liabilities**: Obligations owed by the business to other parties.
### 6. A business purchases goods worth K15, 000 and pays K5, 000 in cash. Record the transaction in the journal.
**Date** | **Account Title** | **Debit (K)** | **Credit (K)**
---|-------------------------|-----------------|----------------
[Date] | Purchases | 15,000 |
| Cash | | 5,000
| Accounts Payable | | 10,000
### 7. State the rule of double-entry for an asset purchased.
When an asset is purchased, the rule of double-entry states that the asset account should be debited (increased) and either the cash account (if paid in cash) should be credited (decreased) or an accounts payable or loan account (if purchased on credit) should be credited (increased).
### 8. From the following balances, prepare a trial balance:
**Trial Balance as of [Date]**
| Account Title | Debit (K) | Credit (K) |
|----------------------|---------------|-------------|
| Cash | 4,000 | |
| Capital | | 10,000 |
| Inventory | 3,000 | |
| Sales | | 7,000 |
| Purchases | 5,000 | |
| **Total** | **12,000** | **17,000** |
### 9. Prepare a Trading, Profit and Loss Account from the following:
**Trading and Profit and Loss Account for the Year Ended [Date]**
**Trading Account:**
| Particulars | Amount (K) |
|----------------------------|--------------|
| Sales | 25,000 |
| Less: Cost of Sales | (10,000) |
| **Gross Profit** | **15,000** |
**Profit and Loss Account:**
| Particulars | Amount (K) |
|----------------------------|--------------|
| Gross Profit | 15,000 |
| Less: Rent | (3,000) |
| Less: Wages | (4,000) |
| **Net Profit** | **8,000** |
### 10. Machinery bought for K20, 000, expected life: 5 years, no residual value. Calculate depreciation using the straight-line method.
**Depreciation per year = (Cost - Residual Value) / Useful life**
Depreciation = (20,000 - 0) / 5 = K4,000 per year.
### Distinguish between capital expenditure and revenue expenditure.
- **Capital Expenditure**: This refers to the funds used by a company to acquire, upgrade, and maintain physical assets such as property, plants, and equipment. These expenditures are capitalized and result in the acquisition or enhancement of long-term assets.
- **Revenue Expenditure**: This involves the funds spent on the day-to-day operations of the business which does not result in the acquisition of long-term assets. It typically includes expenses like rent, wages, and utilities, and is charged in full to the income statement in the period incurred.
### 12. K500 is owed by a customer who has gone bankrupt. What type of adjustment is this, and how is it recorded?
This is a **bad debt adjustment**. It is recorded by debiting the bad debt expense account and crediting accounts receivable.
**Journal Entry:**
| Account | Debit (K) | Credit (K) |
|---------------------------|---------------|-------------|
| Bad Debt Expense | 500 | |
| Accounts Receivable | | 500 |
### 13. If rent of K1, 200 for December is unpaid at year-end, what adjustment is needed?
An adjustment for accrued rent expense is needed.
**Journal Entry:**
| Account | Debit (K) | Credit (K) |
|---------------------------|---------------|-------------|
| Rent Expense | 1,200 | |
| Accrued Rent Liability | | 1,200 |
### 14. If insurance of K2, 400 was paid in advance for 12 months, but only 3 months relate to this year, what is the prepayment adjustment?
The prepayment adjustment would involve recognizing the portion of the insurance that is an expense for the current year and deferring the remaining amount as a prepaid expense.
**Calculation:**
For 3 months of insurance:
Total insurance = K2,400
Monthly insurance = K2,400 / 12 = K200
For 3 months = K200 * 3 = K600 (this is the expense for the current year).
The remaining K1,800 (K2,400 - K600) would be recorded as a prepaid insurance asset.
**Journal Entry:**
| Account | Debit (K) | Credit (K) |
|---------------------------|---------------|-------------|
| Insurance Expense | 600 | |
| Prepaid Insurance | | 1,800 |
I hope these answers help clarify your accounting questions! Let me know if you need further assistance.