WAEC Financial Accounting
Past Questions

AI Explanation

**The reasoning** Closing stock (also called ending inventory) represents goods you still have in your warehouse at the end of an accounting period — items you bought or produced but haven't sold yet. Think of it this way: Can you sell these goods tomorrow and turn them into cash? **Yes!** That's exactly what makes something an asset. Assets are resources your business *owns* that have future economic value. Your closing stock has clear value because: - You can sell it to customers - It will bring money into the business - It's under your control On your Statement of Financial Position (Balance Sheet), closing stock appears under **Current Assets** because you expect to convert it to cash within a year. **Why the wrong options tempt you** **Liability** tricks you if you confuse stock with "goods bought on credit" — but the stock itself isn't what you owe. **Expense** tempts you because you remember stock relates to Cost of Goods Sold, but only *sold* stock becomes an expense. Unsold stock stays an asset. **Income** seems possible since stock generates revenue, but only *after* you sell it. **Quick takeaway** If your business owns it and can sell it for money later, it's an asset — closing stock waits to become tomorrow's sales!

AI Explanation

**The reasoning** Gross profit is calculated as **Sales minus Cost of Goods Sold**. This calculation happens specifically in the **Trading Account**, which is the first part of your Income Statement (or Profit & Loss Account). Think of it this way: The Trading Account shows your trading activities—what you bought (purchases), what you sold (sales), and the profit from that trading before considering expenses. The formula is: **Gross Profit = Sales − Cost of Goods Sold** Where Cost of Goods Sold = Opening Stock + Purchases − Closing Stock This gross profit figure then moves to the Profit & Loss Account where you deduct expenses to get Net Profit. **Why the wrong options tempt you** **A) Balance sheet** shows assets, liabilities, and capital at a specific date—not profit calculations. **C) Statement of affairs** is used when proper books aren't kept; it's a capital statement, not a profit statement. **D) Cash flow** tracks money movement in and out, not profit from trading. **Quick takeaway** Gross profit is born in the Trading Account—it's where you measure your pure trading success before counting any other expenses.

AI Explanation

**The reasoning** Think of the word "debtor" — it comes from *debt*. A debt is money you owe someone. So a **debtor** is someone who owes *you* money. It's that simple. In accounting terms: when someone buys goods from your business on credit (promise to pay later), they become your debtor. You've given them something, and they're *in debt* to you. They owe you. **Why the wrong options tempt you** **B) Lends us money** — This is backwards! Someone who lends *us* money is called a **creditor** (we owe them, so they have credit with us). The "lend/owe" confusion catches many students. **C) Owns shares** — That's a shareholder, totally different concept. **D) Owns assets** — Anyone can own assets; this has nothing to do with owing money. **Quick takeaway** **Debtor = Debt = They owe YOU.** If you owe them, they're your *creditor*. Just remember: the debtor is in debt *to you*, so you're waiting to collect your money from them.

AI Explanation

**The reasoning** Think of drawings as money or goods the owner takes OUT of the business for personal use — maybe to buy food, pay rent at home, or handle family needs. Here's the accounting principle: **Drawings reduce the owner's capital (equity) in the business.** Why? Capital represents what the owner has invested and accumulated in the business. When you withdraw for personal use, you're literally taking away from what belongs to the business. The accounting entry is: - **Debit: Drawings account** (increases) - **Credit: Capital account** (decreases) So drawings directly reduce capital. **Why the wrong options tempt you** - **Sales (A)** — Drawings have nothing to do with business revenue. You might confuse taking goods out with selling them, but there's no customer involved. - **Liabilities (C)** — Drawings don't reduce what the business *owes* others; they reduce what the owner *owns* in the business. - **Stock (D)** — If you withdraw goods, yes, stock decreases physically, but in accounting terms, the primary effect is on **capital**, not stock directly. **Quick takeaway** Drawings = Owner taking from the business = Less capital in the business. It's the owner eating into their own investment.

AI Explanation

**The reasoning** The **accrual concept** is one of the fundamental accounting principles. It says: record income when you *earn* it and expenses when you *incur* them — not when cash changes hands. Think of it this way: If you sell goods in December but the customer pays in January, you record the revenue in December (when you earned it). If you use electricity in December but pay the bill in January, you record the expense in December (when you incurred it). This matches revenues to the expenses used to generate them **in the same period**, giving a true picture of profit for that time. **Why the wrong options tempt you** - **A (Cash basis)** is the opposite — recording only when money moves. It's simpler but doesn't match revenue to the period earned. - **C (Ignore expenses)** sounds absurd, but under pressure, students might confuse accrual with only focusing on revenue. - **D (Year-end only)** is wrong because accrual applies to *every* accounting period (monthly, quarterly, yearly). **Quick takeaway** Accrual = "Record when earned or incurred, not when cash moves" — it matches revenue and expenses to the RIGHT period for accurate profit measurement.