Section A: Theory of Financial Accounting
Question 3
- Distinguish between capital and revenue expenditure.
(b) State two reasons for separating capital expenditure from revenue expenditure.
(c) Explain two factors which must be considered in determining whether any particular item is capital or revenue expenditure.
Observation
Many candidates attempted this question. They were able to define the journal but failed to identify the items contained in each of the books of original entry as a result, the performance was poor. The expected answers include:
(a) A journal is a book of original entry into which transactions are entered on daily basis before they are posted to the ledgers.
(b) The books of original entry are:
(i) Cash book;
(ii) Petty Cash book;
(iii) Sales journal/Sales Day Book;
(iv) Purchases Journal/Purchases Day Book;
(v) Return inwards journal/Returns inwards Day Book;
(vi) Return outwards journal/Return outwards Day Book;
(vii) General journal.
(c) Items contained in the books of original entry:
(i) Cash Book - Cash/cheque receipts;
Cash/cheque payments;
Cash discounts;
Opening cash/bank balances;
Closing cash/bank balance;
Date of the transaction.
(ii) Petty Cash Book - Date of transaction;
Voucher number;
Cash float;
Petty Cash transactions.
(iii) Sales Journal - Names of customers;
Total credit sales;
Trade discounts;
Invoice number;
Date of the transaction.
(iv) Purchases Journal - Names of Suppliers;
Total credit purchases;
Trade discount;
Invoice number;
Date of the transaction.
(v) Returns Inwards Journal – Names of customers;
Total amounts of goods returned by customers;
Trade discounts;
Date of the transaction.
(vi) Returns Outwards Journal – Names of Suppliers;
Total amount of goods returned to suppliers;
Trade discounts;
Date of the transaction.
(vii) General Journal - Credit purchase of fixed assets;
Credit sale of fixed assets;
Opening and closing entries;
Errors corrected;
Issues of shares;