NECO Objective/ Theory & Practice – Financial Accounting Questions and Answers 2025/2026

NECO Objective/ Theory & Practice – Financial Accounting Questions and Answers 2025/2026

SECTION A: Objective Questions (1–50)

Instructions: Choose the correct option A–D that best answers each question.

1. Which of the following is a source document?
   A. Ledger
   B. Cashbook
   C. Invoice
   D. Trial Balance
   Answer: C

2. The debit side of a cash book shows —
   A. payments
   B. expenses
   C. receipts
   D. losses
   Answer: C

3. The owner of a business is called —
   A. creditor
   B. debtor
   C. proprietor
   D. banker
   Answer: C

4. Which account is used to correct errors?
   A. Trading Account
   B. Suspense Account
   C. Capital Account
   D. Cash Account
   Answer: B

5. The process of recording financial transactions is —
   A. posting
   B. balancing
   C. journalizing
   D. trial balancing
   Answer: C

6. A person to whom money is owed is a —
   A. creditor
   B. debtor
   C. shareholder
   D. partner
   Answer: A

7. Which of the following is an intangible asset?
   A. Building
   B. Equipment
   C. Goodwill
   D. Stock
   Answer: C

8. The full meaning of GAAP is —
   A. General Accepted Accounting Principles
   B. Generally Accepted Accounting Practices
   C. Generally Accepted Accounting Principles
   D. General Accepted Accounting Practices
   Answer: C

9. Which book is known as the book of original entry?
   A. Ledger
   B. Journal
   C. Balance Sheet
   D. Trial Balance
   Answer: B

10. Double entry principle states that —
    A. for every debit there is a credit
    B. cash must be received
    C. profit equals expenses
    D. assets = liabilities
    Answer: A

11. Which of these is a liability?
    A. Debtors
    B. Creditors
    C. Stock
    D. Cash
    Answer: B

12. Which account records goods bought on credit?
    A. Cash Account
    B. Purchases Account
    C. Sales Account
    D. Capital Account
    Answer: B

13. What is a ledger?
    A. Summary of trial balance
    B. Principal book of accounts
    C. Cash record
    D. Document of debt
    Answer: B

14. The purpose of trial balance is to —
    A. prepare cash book
    B. check arithmetical accuracy
    C. pay creditors
    D. record sales
    Answer: B

15. Bank overdraft is —
    A. asset
    B. liability
    C. expense
    D. income
    Answer: B

16. Which of these is a real account?
    A. Capital Account
    B. Wages Account
    C. Furniture Account
    D. Sales Account
    Answer: C

17. Which account is closed to Trading Account?
    A. Purchases
    B. Salaries
    C. Rent
    D. Debtors
    Answer: A

18. What is carriage inwards?
    A. Cost of selling goods
    B. Cost of buying goods
    C. Cost of delivering goods to customers
    D. Cost of returning goods
    Answer: B

19. Returns inwards is also called —
    A. Sales Returns
    B. Purchases Returns
    C. Debtors
    D. Creditors
    Answer: A

20. The balance sheet shows —
    A. profit and loss
    B. liabilities and assets
    C. income only
    D. expenses only
    Answer: B

21. Which of the following errors does not affect trial balance?
    A. Omission
    B. Transposition
    C. Partial omission
    D. Compensating error
    Answer: D

22. The trading account is prepared to ascertain —
    A. gross profit or loss
    B. net profit or loss
    C. expenses
    D. liabilities
    Answer: A

23. Which of these is a current asset?
    A. Land
    B. Debtors
    C. Machinery
    D. Capital
    Answer: B

24. Which of these is not a current liability?
    A. Creditors
    B. Bank Overdraft
    C. Debtors
    D. Accrued Expenses
    Answer: C

25. Capital introduced into the business is —
    A. asset
    B. liability
    C. expense
    D. income
    Answer: B

26. The main purpose of accounting is to —
    A. make profit
    B. record transactions
    C. provide financial information
    D. pay tax
    Answer: C

27. The principle of prudence ensures —
    A. overstatement of profit
    B. understatement of profit
    C. equal profit
    D. increased capital
    Answer: B

28. An example of a current liability is —
    A. Loan repayable in 10 years
    B. Creditors
    C. Land and Buildings
    D. Capital
    Answer: B

29. Discount allowed is —
    A. income
    B. expense
    C. liability
    D. asset
    Answer: B

30. Discount received is —
    A. income
    B. expense
    C. liability
    D. asset
    Answer: A

31. Which of these is a personal account?
    A. Building Account
    B. Cash Account
    C. Debtors Account
    D. Sales Account
    Answer: C

32. Which account shows net profit?
    A. Trading Account
    B. Balance Sheet
    C. Profit and Loss Account
    D. Purchases Account
    Answer: C

33. Wages are classified as —
    A. asset
    B. liability
    C. income
    D. expense
    Answer: D

34. Which is not a source document?
    A. Invoice
    B. Receipt
    C. Ledger
    D. Credit Note
    Answer: C

35. What is depreciation?
    A. Increase in value
    B. Decrease in value
    C. Increase in profit
    D. Decrease in expenses
    Answer: B

36. Petty cash is used for —
    A. big payments
    B. recording sales
    C. small payments
    D. buying stock
    Answer: C

37. Which is a feature of trial balance?
    A. Summary of transactions
    B. Statement of assets
    C. Arithmetical accuracy test
    D. Profit calculation
    Answer: C

38. Provision for bad debts is —
    A. asset
    B. liability
    C. expense
    D. reserve
    Answer: C

39. Accrued expenses are —
    A. prepayments
    B. expenses unpaid
    C. income earned
    D. profit
    Answer: B

40. Which of the following is not a user of accounting information?
    A. Owner
    B. Employees
    C. Customers
    D. Furniture
    Answer: D

41. Which of the following is an asset?
    A. Creditors
    B. Debtors
    C. Bank Overdraft
    D. Accrued Expenses
    Answer: B

42. A trial balance has —
    A. two columns
    B. four columns
    C. three columns
    D. five columns
    Answer: A

43. Prepaid expenses are —
    A. liabilities
    B. assets
    C. income
    D. expenses
    Answer: B

44. What is the purpose of bank reconciliation?
    A. To record sales
    B. To balance ledger
    C. To match cashbook and bank statement
    D. To calculate profit
    Answer: C

45. A credit note is sent to a —
    A. creditor
    B. customer who returns goods
    C. bank
    D. staff
    Answer: B

46. The main book of accounts is the —
    A. cashbook
    B. ledger
    C. journal
    D. petty cashbook
    Answer: B

47. The entry for purchase of goods for cash is —
    A. Purchases Dr, Cash Cr
    B. Cash Dr, Purchases Cr
    C. Bank Dr, Purchases Cr
    D. Purchases Dr, Bank Cr
    Answer: A

48. Which of these is a capital expenditure?
    A. Wages
    B. Repairs
    C. Purchase of vehicle
    D. Rent
    Answer: C

49. Which is an example of revenue expenditure?
    A. Buying land
    B. Installing machinery
    C. Repairs of vehicle
    D. Buying building
    Answer: C

50. Drawings by owner reduce —
    A. expenses
    B. profit
    C. capital
    D. assets
    Answer: C

SECTION B: Essay/Theory Questions

Answer any four (4) questions only.

Question 1:
(a) Define accounting.
(b) List and explain four branches of accounting.

Question 2:
(a) What is a trial balance?
(b) State four uses of trial balance.

Question 3:
(a) Explain the term depreciation.
(b) List three causes of depreciation.
(c) State two methods of calculating depreciation.

Question 4:
(a) Define capital and revenue expenditure.
(b) Give two examples of each.

Question 5:
(a) What is a ledger?
(b) Mention and explain three types of ledger.

Question 6:
(a) List four users of accounting information.
(b) State one need of each user.

NECO Objective/ Theory & Practice – Financial Accounting Questions and Answers 2025/2026

Essay/Theory Answers

Question 1

(a) Define accounting.
Accounting is the systematic process of recording, classifying, summarising, interpreting, and communicating financial information about a business.

(b) List and explain four branches of accounting.

1. Financial Accounting: Recording and summarising transactions to prepare financial statements for external users.

2. Cost Accounting: Recording and analysing costs to help management control expenses.

3. Management Accounting: Providing information to managers for decision-making and planning.

4. Auditing: Independent examination of financial records to express an opinion on their truth and fairness.

NECO Objective/ Theory & Practice – Financial Accounting Questions and Answers 2025/2026

Question 2

(a) What is a trial balance?
A trial balance is a statement showing the debit and credit balances of all ledger accounts to test the arithmetical accuracy of bookkeeping.

(b) State four uses of trial balance.

1. Checks the accuracy of ledger postings.

2. Summarises all ledger balances.

3. Aids in preparing final accounts.

4. Helps detect certain types of errors.

Question 3

(a) Explain the term depreciation.
Depreciation is the gradual decrease in the value of a fixed asset due to usage, wear and tear, or obsolescence.

(b) List three causes of depreciation.

1. Wear and tear.

2. Passage of time.

3. Obsolescence (being outdated).

(c) State two methods of calculating depreciation.

1. Straight-line method.

2. Reducing balance method.

Question 4

(a) Define capital and revenue expenditure.

• Capital Expenditure: Money spent to acquire or improve fixed assets, benefiting the business long-term.

• Revenue Expenditure: Money spent on day-to-day running costs, benefiting only the current period.

(b) Give two examples of each.

• Capital Expenditure: Purchase of machinery, building extension.

• Revenue Expenditure: Wages, repairs to machinery.

Question 5

(a) What is a ledger?
A ledger is the principal book of accounts where all business transactions are classified and summarised under appropriate headings.

(b) Mention and explain three types of ledger.

1. Sales Ledger: Records personal accounts of debtors (customers who owe the business).

2. Purchases Ledger: Records personal accounts of creditors (suppliers owed by the business).

3. General Ledger: Contains all other accounts like assets, expenses, income, and capital.

NECO Objective/ Theory & Practice – Financial Accounting Questions and Answers 2025/2026

Question 6

(a) List four users of accounting information.

1. Owners

2. Managers

3. Creditors

4. Government

(b) State one need of each user.

• Owners: To know profit and financial position.

• Managers: To plan and control business activities.

• Creditors: To assess creditworthiness.

• Government: For taxation and regulatory purposes.

Practice Question 1

A business bought furniture for ₦80,000. It depreciates at 10% per annum using the straight-line method. Calculate the depreciation for one year.

Solution:

Depreciation=10100×80,000=₦8,000\text{Depreciation} = \frac{10}{100} \times 80,000 = ₦8,000Depreciation=10010​×80,000=₦8,000

Practice Question 2

A company had sales of ₦500,000 and purchases of ₦300,000. Calculate the gross profit if expenses were ₦50,000.

Solution:

$$\text{Gross Profit}=\text{Sales}-\text{Purchases}$$ $$=₦500,000-₦300,000=₦200,000$$

Practice Question 3

If opening stock = ₦40,000, purchases = ₦120,000, and closing stock = ₦30,000, calculate Cost of Goods Sold (COGS).

Solution:

$$\text{COGS}=\text{Opening Stock}+\text{Purchases}-\text{Closing Stock}$$ $$=₦40,000+₦120,000-₦30,000$$ $$=₦130,000$$

NECO Objective/ Theory & Practice – Financial Accounting Questions and Answers 2025/2026

Practice Question 4

A debtor owes ₦25,000. A provision for bad debts is to be made at 5%. Calculate the provision.

Solution:

$$\text{Provision}=5\%\times 25,000$$ =5100×25,000= \frac{5}{100} \times 25,000=1005​×25,000 $$=₦1,250$$

Practice Question 5

Prepare the journal entries for:
(a) Purchased goods on credit from Musa ₦15,000.
(b) Paid cash to Musa ₦15,000.

Solution:
(a) Purchase on credit:

(b) Payment in cash:

Practice Question 6

Calculate the Capital if:
Assets = ₦200,000 and Liabilities = ₦80,000.

Solution:

$$\text{Capital}=\text{Assets}-\text{Liabilities}$$ $$=₦200,000-₦80,000$$ $$=₦120,000$$