Question

SECTION A
1.(a) Mention three disadvantages to a business that does not keep proper accounting records.
(b) Explain the following characteristics of accounting information: (i) Relevance; (ii) Comparability; (iii) Consistency; (iv) Reliability.
(c) State two limitations in the use of accounting information for business decision making.

Accepted Answer

(a) The business will not be able to apply for loans from commercial banks; it does not show if the organisation is making profit or loss; decision making will be made randomly and not based on available reliable data.
(b)(i) Relevance: the accounting information must be useful for the purpose for which it is sourced.
(ii) Comparability: two related accounting information should be prepared in a way that they can be compared.
(iii) Consistency: the accounting methods used must be consistent over a reasonable period, e.g. using the straight line method of depreciation consistently for the same asset over the years.
(iv) Reliability: accounting information should be verifiable and factual, providing information that can be relied upon for decision making.
(c) It does not take into consideration the time value of money; window dressing of accounting information may affect decision making.

WAEC Accounting 2018 Theory — Question 1

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