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2017 WAEC Accounts - Principles of Accounts Theory (a) What is a suspense Account (b) Differentiate between the following; (i)  Provisions and Reserves (ii) Expenses...

Accounts - Principles of Accounts
WAEC 2017

(a) What is a suspense Account

(b) Differentiate between the following;
(i)  Provisions and Reserves
(ii) Expenses and Revenue
(iii) Capital reserves and Revenue reserves

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Explanation

(a) A Suspense Account is a temporary account into which any amount in respect of a transaction whose source is unknown is placed, pending  investigations.
or
A Suspense Account is a temporary account into which the difference in a trial balance totalsis recorded pending the location and correction of the errors.

(b)(i)Differences between Provisions and Reserves:


Provisions

Reserves

i. They are charges against profit.

i. They are appropriations of profits.

ii. They cannot be estimated accurately.

ii. They are specific amounts set aside of
profits.

iii. They are designed to provide for known
liabilities.

iii. They are not designed to meet any known
liability.

iv.  They reduce the capital of the business.

iv.  They form part of the business capital.

v.  They are meant for a specific purpose.

v.  They may be used for specific or general
purposes.

(b)(ii)   Differences between Expenses and Revenue


Expenses

Revenue

i. They are outflows in economic benefits arising from the ordinary operating activities of an organization.

i.. They are inflows of economic benefits arising from the ordinary operating activities of an organization.

ii. They result in increases in liabilities or decreases in assets.

ii. They result in increases in assets or decreases in liability.

(c) (i) Capital reserves- These are amounts made out of capital profits which are not available for distribution as dividend.
They are funds created to finance long term projects or write off capital expenses.

(ii) Revenue reserves

  • These are amounts usually available for distribution through the Profit and Loss;
  • These are amounts set out of profits and are available for distribution as dividend;
  • These are sums of money retained in business, so as to meet future contingencies.
  • They are amounts set aside to improve the financial position of the entity.

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NECO June/July 2024 - Get offline past questions & answers - Download objective & theory, all in one app 48789
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WAEC Past Questions, Objective & Theory, Study 100% offline, Download app now - 24709
WAEC Past Questions, Objective & Theory, Study 100% offline, Download app now - 24709
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NECO June/July 2024 - Get offline past questions & answers - Download objective & theory, all in one app 48789