Baf 1101 Fa Cat Two

DEADLINE 27 03 18
BAF 1101 CAT 11
Instructions Time 1 Hour
Attempt all questions
1. The objective of financial statements is to provide information about the

financial positions, performance and changes in financial position of an entity that
is useful to a wide range of users in making economic decisions.
Required:
a) State FIVE potential users of company published financial statements,

briefly explain for each one their likely information needs from those
statements. (10mks)
(i) Investors: Those who want to invest money in an Organisation want to know
the financial health of the organization. They need accounting information
which will help them in evaluating past performance and future prospects of
the organization.
(ii) Creditors: Creditors means supplier of goods and services on credit, banks and
lenders of money who want to know the financial position of a concern before
providing loans or granting credit. They need accounting information relating
to current assets, quick assets and current liabilities which is available in the
financial statements.
(iii) Owners: Business owners want to know whether their funds are being
properly used or not. Accounting information helps them to know the

profitability and the financial position of the concern in which they have
invested their funds.

(iv)Management: Accounting information is called the eyes and ears of
management. It helps a manager in appraising the performance of the
subordinates.
(v) Employees: Employees of the organization can get the actual information
about the financial position of their organization with the help of financial
statements prepared by the accountant.
b) Define the following accounting concepts and give for each one an example
of its applicability.
i. Accrual concept (2mks)
The accrual concept in accounting means that expenses and revenues are recorded in the
period they occur, whether or not cash is involved. The benefit of the accrual approach is
that financial statements reflect all the expenses associated with the reported revenues for
an accounting period. Once a business receives or makes cash payments, it reverses the
accrual accounting entries and records the cash transactions. Accrued revenue refers to
revenues for which a business has not received cash payment from the customer. In
accrual accounting, a credit sale is recorded when a customer takes delivery of a product
— not when he pays the invoice in cash. Accrued expenses refer to those for which a
business has not made cash payment. For example, a company incurs interest on
outstanding bonds through the year but may make interest and principal payments
semiannually.
ii. Money measurement concept. (2mks)

This concept assumes that all business transactions must be in terms of money
that is in the currency of a country. In our country such transactions are in terms
of Shillings Thus, as per the money measurement concept, transactions which
can be expressed in terms of money are recorded in the books of accounts. For
example, sale of goods worth Shs.200, 000, is recorded in the books of accounts.
But the transactions which cannot be expressed in monetary terms are not
recorded in the books of accounts.
iii. Dual concept (2 marks)
Dual aspect is the foundation or basic principle of accounting. It provides the very basis
of recording business transactions in the books of accounts. This concept assumes that
every transaction has a dual effect, i.e. it affects two accounts in their respective opposite
sides. Therefore, the transaction should be recorded at two places. It means, both the
aspects of the transaction must be recorded in the books of accounts. For example, goods
purchased for cash has two aspects which are (i) Giving of cash (ii) Receiving of goods.
These two aspects are to be recorded. Thus, the duality concept is commonly expressed in
terms of fundamental accounting equation: Assets = Liabilities + Capital
Questions two
Jane Onyango opened a shop in Makutano on 1st August 2009. The following
transactions took place during the month of August 2009
(i) 1st August: introduction of kshs. 200,000 in cash into the business from his private
bank a/c
(ii) 2nd August: opened a business a/c by transferring kshs. 180,000 of the business cash
into the account.
(iii) 5th August: paid kshs 5000 in cash being rent for the month
(iv) 6th August: bought second hand shop equipment at kshs. 3,000 and paid by cheque.
(v) 9th August: purchased goods for resale for Kshs. 10,000 and paid by cash.
(vi) 11th August: purchased goods for resale on credit at kshs. 20,000 from Joash Okwako
(vii) 20th August: returned goods worth kshs 2,000 to Joash Okwako
(viii) 23rd August: Made a cash sales of Kshs. 15,000
(ix) 25th August: paid Joash Okwako shs 16,200 by cheque with the balance being
discount.
(x) 26th August: sold goods on credit worth shs. 10,000 to Judy Wambui
(xi) 27th August: Judy Wambui returned goods worth 1,500
(xii) 28th August: received a cheque of kshs. 7,500 from Judy Wambui to settle her account
the balance being treated as cash discount.
(xiii) 30th August: sold some second hand office equipment at kshs. 1,000 in cash there was
no profit or loss on disposal
(xiv) 30th August: made cash withdrawal of kshs 1,500 for his private use.
(xv) 29th August, she took some goods from the shop for her personal use without paying
for them.
Required
a) Journalize the above transactions, post them to the ledgers and prepare a trial
balance (14 marks)
1. Business Accounting Volume 1 13th ed. Alan Sangster, Frank Wood
2. Financial Accounting Belverd E. Needles, Marian Powers

Baf 1101 Fa Cat Two

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DEADLINE 27 03 18

BAF 1101 CAT 11

Instructions Time 1 Hour

Attempt all questions

1. The objective of financial statements is to provide information about the

a) State FIVE potential users of company published financial statements,

the financial health of the organization. They need accounting information

providing loans or granting credit. They need accounting information relating

properly used or not. Accounting information helps them to know the

invested their funds.

management. It helps a manager in appraising the performance of the

statements prepared by the accountant.

ii. Money measurement concept. (2mks)

of Shillings Thus, as per the money measurement concept, transactions which

recorded in the books of accounts.

iii. Dual concept (2 marks)

terms of fundamental accounting equation: Assets = Liabilities + Capital

1. Business Accounting Volume 1 13th ed. Alan Sangster, Frank Wood

2. Financial Accounting Belverd E. Needles, Marian Powers

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