(a) What is a suspense Account
(b) Differentiate between the following;
(i) Provisions and Reserves
(ii) Expenses and Revenue
(iii) Capital reserves and Revenue reserves
Explanation
(a) A Suspense Account is a temporary account into which any amount in respect of a transaction whose source is unknown is placed, pending investigations.
or
A Suspense Account is a temporary account into which the difference in a trial balance totalsis recorded pending the location and correction of the errors.
(b)(i)Differences between Provisions and Reserves:
Provisions |
Reserves |
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i. They are charges against profit. |
i. They are appropriations of profits. |
|
ii. They cannot be estimated accurately. |
ii. They are specific amounts set aside of |
|
iii. They are designed to provide for known |
iii. They are not designed to meet any known |
|
iv. They reduce the capital of the business. |
iv. They form part of the business capital. |
|
v. They are meant for a specific purpose. |
v. They may be used for specific or general |
(b)(ii) Differences between Expenses and Revenue
Expenses |
Revenue |
|
i. They are outflows in economic benefits arising from the ordinary operating activities of an organization. |
i.. They are inflows of economic benefits arising from the ordinary operating activities of an organization. |
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ii. They result in increases in liabilities or decreases in assets. |
ii. They result in increases in assets or decreases in liability. |
(c) (i) Capital reserves- These are amounts made out of capital profits which are not available for distribution as dividend.
They are funds created to finance long term projects or write off capital expenses.
(ii) Revenue reserves
- These are amounts usually available for distribution through the Profit and Loss;
- These are amounts set out of profits and are available for distribution as dividend;
- These are sums of money retained in business, so as to meet future contingencies.
- They are amounts set aside to improve the financial position of the entity.