22/07/2026
*NECO FINANCIAL ACCOUNTING*
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*SECTION A:* ANSWER TWO QUESTIONS FROM THIS SECTION
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(1ai)
Three Column Cash Book: A Three Column Cash Book is a special book of original entry used to record all cash and bank transactions of a business. It contains three columns on both the debit and credit sides namely the Cash Column, Bank Column, and Discount Column. The cash column records all cash receipts and payments, the bank column records all money paid into or withdrawn from the bank, while the discount column records discounts allowed and discounts received. It serves as both a cash book and a bank account.
(1aii)
Cash Discount: A Cash Discount is a reduction in the amount payable granted by a seller to a buyer as an incentive for making payment promptly or before the agreed due date. It encourages customers to settle their debts early, improves cash flow, and reduces the risk of bad debts.
(1aiii)
Working Capital is the excess of a business's current assets over its current liabilities. It represents the amount of funds available for the day-to-day operations of the business. Adequate working capital enables a business to pay its short-term obligations, purchase inventory, and maintain smooth business operations. Formula: Working Capital = Current Assets − Current Liabilities.
(1aiv)
Gross Profit: Gross Profit is the profit a business earns after deducting the cost of goods sold from the total sales revenue. It shows how efficiently the business is producing or purchasing and selling its goods before operating expenses are deducted. Formula: Gross Profit = Sales − Cost of Goods Sold.
(1av)
Net Profit: Net Profit is the final profit made by a business after deducting all operating expenses, administrative expenses, selling and distribution expenses, interest, depreciation, and taxes from the gross profit. It represents the actual earnings of the business available to the owner or shareholders. = Gross Profit − Operating Expenses.
(1b)
(i) Business owners (Proprietors)
(ii) Managers
(iii) Shareholders
(iv) Creditors (Suppliers)
(v) Debtors (Customers)
(vi) Investors (Potential Investors)
(vii) Banks and other financial institutions
(viii) Government and tax authorities
(ix) Employees and trade unions
(x) Researchers and financial analysts
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(2a)
A partnership is a form of business organization in which two or more persons agree to contribute capital, skills, or labour to establish and manage a business with the aim of making and sharing profits and losses according to an agreed ratio. The relationship is governed by a partnership deed.
(2b)
(PICK ANY SIX)
(i) Name and address of the partnership.
(ii) Names and addresses of the partners.
(iii) Amount of capital contributed by each partner.
(iv) Profit and loss sharing ratio.
(v) Rate of interest on capital and drawings.
(vi) Salaries, commissions, or allowances payable to partners.
(vii) Duties, rights, and responsibilities of each partner.
(viii) Procedure for admission, retirement, or death of a partner.
(2c)
=Differences=
(PICK ANY SIX)
(i) Receipts and Payments Account records both capital and revenue items, while Income and Expenditure Account records only revenue items.
(ii) Receipts and Payments Account is prepared on a cash basis, while Income and Expenditure Account is prepared on an accrual basis.
(iii) Receipts and Payments Account records all cash received and paid during the period whether they relate to the current year or not, while Income and Expenditure Account records only income and expenses relating to the current accounting period.
(iv) Receipts and Payments Account begins with the opening cash and bank balances and ends with the closing cash and bank balances, while Income and Expenditure Account begins with income and ends with either surplus or deficit.
(v) Receipts and Payments Account is similar to a cash book, while Income and Expenditure Account is similar to a profit and loss account.
(vi) Receipts and Payments Account does not include outstanding or prepaid items, while Income and Expenditure Account includes accrued, prepaid, outstanding, and outstanding expenses where necessary.
=Similarity=
(PICK ANY ONE)
(i) Both are prepared by non-profit-making organizations to summarize their financial transactions and assess their financial performance during an accounting period.
(ii) Both are prepared from information obtained from the accounting records of the organization to determine its financial position.
(iii) Both contain records of income and expenses relating to the activities of the organization.
(iv) Both are used by management and other users of accounting information for planning, control, and decision-making purposes
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(3a)
Capital market is a financial market where long-term funds and securities are raised and traded. It enables governments and companies to obtain long-term capital through the buying and selling of shares, debentures, bonds, and other long-term securities.
(3b)
(PICK ANY FIVE)
(i) Unpresented Cheques: Unpresented cheques are cheques issued by the business and recorded in the cash book but have not yet been presented to the bank for payment by the payees. As a result, they reduce the cash book balance immediately but do not affect the bank statement until they are presented and cleared.
(ii) Uncredited Cheques (Outstanding Lodgements): These are cheques received from customers and paid into the bank by the business but have not yet been processed or credited by the bank. They appear in the cash book but are not reflected in the bank statement until the bank clears them.
(iii) Bank Charges: Banks deduct charges for services such as account maintenance, cheque books, SMS alerts, and transfers directly from customers' accounts. These deductions appear in the bank statement before the business records them in the cash book, causing a temporary difference.
(iv) Direct Credits: A customer or another person may pay money directly into the business bank account without informing the business immediately. Such deposits appear first in the bank statement and are only entered into the cash book after the business becomes aware of them.
(v) Direct Debits or Standing Orders: The bank may make payments on behalf of the account holder, such as electricity bills, insurance premiums, subscriptions, loan repayments, or standing orders. These payments reduce the bank balance immediately but may not be recorded in the cash book until the business receives the bank statement.
(vi) Dishonoured Cheques: A cheque previously deposited into the bank may be returned unpaid because of insufficient funds, a wrong signature, or other reasons. The bank reverses the amount from the account, causing a difference until the cash book is updated.
(vii) Errors in the Cash Book: Mistakes such as omission of entries, wrong figures, double posting, overcasting, undercasting, or recording transactions on the wrong side of the cash book can result in differences between the cash book and the bank statement.
(viii) Errors Made by the Bank: Sometimes the bank may mistakenly debit or credit the customer's account with the wrong amount or post another customer's transaction into the account. Such errors create disagreement between the cash book and the bank statement until they are identified and corrected.
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(4a)
(PICK ANY FOUR)
(i) Both involve two or more persons who come together to carry on a business with the aim of making profit.
(ii) Both require the parties to contribute capital, skills, labour, or other resources towards the operation of the business.
(iii) Both share profits and losses among the parties according to an agreed ratio.
(iv) Both are established through an agreement which states the terms and conditions governing the business relationship.
(v) Both require mutual trust, honesty, and cooperation among the parties for the successful operation of the business.
(vi) Both require proper books of account to record business transactions and determine profit or loss.
(vii) Both involve joint ownership and management of the business by the parties unless otherwise agreed.
(viii) Both create an agency relationship in which each party can act on behalf of the others in matters relating to the business.
(4b)
Trade discount is a reduction in the listed or catalogue price of goods granted by a seller to a buyer, usually because of bulk purchases or trade relationships. It is deducted before payment is made and is not recorded in the books of account.
(4c)
=Assets=
(i) Land
(ii) Premises
(iii) Debtors
(iv) Cash in hand
(v) Subscription in arrears
(vi) Stock
(vii) Motor van
=Liabilities=
(i) Creditors
(ii) Bank overdraft
(iii) Subscription in advance
(iv) Debenture
(v) Loan
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