Section A: Theory of Financial Accounting
Question1
- (a) Accumulated fund
(bi) Differences between Income and Expenditure Account and Receipts and Payments Account
(b)ii Differences between Fixed Capital Account and Fluctuating Capital Account
Observation
Question 1
Candidates’ performance in this question which was on definition of accumulated fund, differences between income and expenditure account/receipts and payments account/ fixed capital account/fluctuating capital account was fairly attempted by majority of the candidates scoring average marks. The average performance depicts candidates’ lack of in-depth understanding on how to differentiate between instructions given as “list”, “outline”, or “state.
Some of the suggested responses were:
(a) Accumulated fund:
- This is the capital of a not-for-profit making organization like clubs and societies;
- It is the difference between the total assets and total liabilities of a not-for-profit making organization at a point in time;
(bi) Differences between Income and Expenditure Account and Receipts and Payments Account
SN |
Income and Expenditure Account |
Receipts and Payments Account |
It is a nominal account. |
It is a real account. |
|
It records only revenue receipts and revenue expenditure. |
It records both capital and revenue receipts and expenditure. |
|
It summarises only incomes and expenditure for the current year making adjustments for accruals and prepayments. |
It summarizes all receipts and payments of all cash transactions whether related to the period or not. |
|
It is equivalent to the Profit and Loss Account. |
It is equivalent to the cash book. |
|
It is usually prepared periodically. |
It is usually prepared on daily basis. |
|
Incomes appear on the credit side while expenditure are debited. |
Receipts are recorded on the debit side while payments are credited. |
|
The balance shows either a surplus or deficit. |
The balance shows cash in hand and at bank. |
|
It is prepared on accrual basis. |
It is prepared on cash basis. |
(b)ii Differences between Fixed Capital Account and Fluctuating Capital Account
SN |
Fixed Capital Account |
Fluctuating Capital Account |
I |
It records only capital introduced, additions and withdrawals |
It records all transactions relating to partners such as capital contributions, capital withdrawals, share of profits or losses. |
Ii |
The balance on the account is more permanent. |
The balance on this account keeps on changing from time to time. |
iii |
Other transactions such as interest on capital, interest on drawings, share of profits or losses and drawings are recorded in a separate partners’ current account. |
It records both items in fixed capital account and current account into one account.
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