ESSS 2022 4E5N Prelim P1 ANS

Answer to4E5NPrelim2022P1Question1Geremihasjuststartedabusinessandhassomequestionsonaccountingmattersthathewouldliketoclarify. REQUIRED(a) Whenatrialbalanceisbalanced,itdoesnotmeanthattherearenoerrorsintheaccounts.Explainthereasonforthis. [1] Thisisbecauseledgeraccountsmaycontainerrorswhichdonotaffectthebalancingofthetrialbalance. [1] (b) Explainwhyitisimportanttohaveinternalcontrolsinabusiness. [2] Anytwoofthefollowingpoints[1markfor eachpoint]- Tosafeguardtheassetsofthebusiness- Toensurethatbusinesstransactionsarerecordedaccurately- Toensurethatbusinesscomplywithlawsandregulations (c) Statetwoexamplesofinternalcontrolprocedureovercash. [2] Anytwoofthefollowingpoints[I markfor eachpoint]- Separatecashhandlingandcashrecordingdutiesamongdifferentemployeessothatnosinglepersonhascontrolovertheentirecashprocess- Securecashandchequesinalockedstorageandlimitaccesstoauthorisedpersonnel- Depositcashandchequesdailyintothebanktominimisetheamountofcashorchequeskeptovernightatthebusinesslocation- Obtainproperapprovalsforallpaymentsfromauthorisedpersonnel- Requirevalidsourcedocumentsforallpayments- Preparebankreconciliationtocheckinternalrecordsagainstexternaldocuments. (d) Explainoneadvantageofoperatingabusinessasasoleproprietorshipinsteadofaprivatelimitedcompany. [1] Anyoneofthefollowingpoints[1]- Asoleproprietorhasfullcontroloverthebusiness- Asoleproprietorshipbusinesshasminimumadministrativedutiestoadhereto (e) Explainonedisadvantageofoperatingabusinessasasoleproprietorshipinsteadofaprivatelimitedcompany. [1] Anyoneofthefollowingpoints[1]- Asoleproprietorhasunlimitedliabilityandhastousehispersonalassetstopaybusinessdebtsifthebusinessisunabletodoso- Asoleproprietorshipbusinesshaslimitedresourcesasthereisonlyoneownerwhocancontributecapital- Asoleproprietorshipmayfinditdifficulttoborrowloansasthereislimitedresourcestouseascollaterals

2 (f) Explainwhyabusinessneedstopreparefinancialstatementsatregulartimeintervalswiththesupportofanaccountingtheory [2] Accordingtothegoingconcerntheorywhichstatesthatthebusinessisassumedtohaveanindefiniteeconomiclifeunlessthereiscredibleevidencethatitmayclosedown[1],abusinessneedstopreparefinancialstatementsatregulartimeintervalsinordertoprovidetimelyfinancialinformationtostakeholderstohelpthemmakedecisions.[1] Or Accordingtotheaccountingperiodtheory,thelifeofabusinessisdividedintoregulartimeintervals[1]andfinancialstatementsarepreparedatregulartimeintervalstoprovidetimelyfinancialinformationtostakeholderstohelpthemmakedecisions.[1] [Total: 9]

3 Question2ThefollowingservicefeerevenueaccountwasextractedfromthebooksofGetTogetherPteLtd,whichisaneventorganiser. ServicefeerevenueAccount Date Particulars Dr Cr Balance2022 $ $ $Mar 1 Servicefeerevenuereceivedinadvance(1) 4,900 4,900CrMar 6 Cashinhand 2,300Mar15 Cashatbank(3) 3,600Mar22 Tradereceivables(4) 7,300Mar31 Servicefeerevenuereceivedinadvance(2) 1,500 REQUIRED(a) Explainthedifferencebetweenentries(1)and(2). [2] Entry(1)isthereversingentryfor$4,900whichwasreceivedduringtheprev