Accounting SA Q & A

1. i. Explain briefly the difference between an error of commission and an error of principle. (4 marks)

a. Error of commission - where a debit or credit entry is made for the correct amount in the correct class of account, but in the wrong account.

b. Error of principle - where a debit or credit entry is made for the correct amount but in the wrong class of account.

ii. How many types of ledgers and explain each ledger. (6 marks)

3 types of ledgers

These are Sales ledgers, Purchase ledgers and General/Nominal ledgers.

Sales ledger  - the ledger in which the accounts of credit customers are maintained.

Purchase ledger - ledger in which the accounts of credit suppliers are maintained.

General/Nominal ledger - the ledger where all the other accounts are maintained.

iii. Explain the meaning of the term "dishonoured cheque" (2 marks)

A dishonoured cheque is a cheque received which the debtor's bank refuses to pay.

iv. Explain why it is not possible to have a credit balance brought down in the cash column of a cash book. (2 marks)

It is impossible to take out more cash than is physically present in the cash box, so there can never be an overdrawn cash balance.

v. Explain what is meant by a contra entry in a cash book. (1 mark)

A contra entry is one which appears on both sides of the cash book.

2. i. Explain briefly the difference between an error of omission and an error of original entry. (4 marks)

a. Error of omission - where a transaction is completely omitted from the records.

b. Error of original entry - where a mistake is made transferring the amount from the source document to the subsidiary book.

ii. Describe three main reasons for maintaining accounting records. (3 marks)

To inform the owner about : how profitable the business is, whether the business is making the best use of its resources.

iii. State the two main reasons for preparing a trial balance. (2 marks)

- it is prepared to check the arithmetical accuracy of the double entry book-keeping.

- it can help in locating arithmetical errors.

- it is useful when preparing financial statements.

iv. Explain the meaning of the term bank overdraft. (2 marks)

A bank overdraft occurs when more has been paid out of the bank than was put into the bank account.

v. Explain the meaning of cash discount. (2 marks)

Cash discount is an allowance given to the customer when an account is settled within a time limit set by the supplier.