5 questions · 10 marks · ≈ 10 min
On 2 October 2025, Hashim uses the business bank account to purchase two phones. Hashim uses one for business use and one for personal use.
Hashim makes the following journal entries.
| Details | Debit $ | Credit $ |
|---|---|---|
| Phone | 300 | |
| Drawings | 300 | |
| Bank | 600 |
REQUIRED
Explain how the business entity principle has been applied in the journal entries.
Ramla has calculated her draft profit figure for the year ended 28 February 2023. Adjustments in Ramla’s ledger accounts have still to be made for the following items
Ramla prepares journal entries to correct the errors.
REQUIRED
Explain
(i) how the journal for item 1 complies with the prudence principle.
(ii) how the journal for item 2 complies with the business entity principle.
Sara owns a clothing factory. She sells the clothing to a small number of local shops. She allows 30 days credit.
Sara’s factory supervisor is very efficient at running the factory.
REQUIRED
State which accounting principle Sara is complying with by not recording any value for this efficiency in her financial statements.
Logan is a trader who sells goods on credit. His year end is 30 September. Logan has provided the following information.
| $ | |
|---|---|
| At 1 October 2022 | |
| Inventory | 8 400 |
| Trade receivables | 7 500 |
| Other receivables (rent prepaid) | 820 |
| For the year ended 30 September 2023 | |
| Rent charge for the year | 4 940 |
| Bank payments for rent 1 December 2022 | 2 460 |
| 1 June 2023 | 2 490 |
| At 30 September 2023 | |
| Inventory | 8 675 |
| Trade receivables | 8 700 |
| Other receivables | ? |
| Irrecoverable debts to be written off | 325 |
The provision for doubtful debts is to be maintained at 4% of trade receivables.
REQUIRED
State how:
(i) the prudence principle is applied to the valuation of Logan’s inventory
(ii) the matching principle is applied when the rent payable account is prepared
State why financial statements may still be reliable even if errors are present.