2026 NECO Objective & Essay Theory and Practice Accounting Examination Questions and Answers
2026 NECO Objective & Essay Theory and Practice Accounting Examination Questions and Answers
Paper I
Objective Test (Questions 1–60)
Instructions: Choose the option that best answers each question.
1. Accounting is best defined as the
A. buying and selling of goods
B. systematic process of recording, classifying, summarizing, interpreting, and communicating financial information
C. preparation of government budgets only
D. management of employees
Answer: B
2. The main objective of accounting is to
A. increase production costs
B. provide financial information for decision-making
C. advertise business products
D. recruit employees
Answer: B
3. The person who owns a sole proprietorship is known as the
A. shareholder
B. proprietor
C. creditor
D. partner
Answer: B
4. Which of the following is NOT a user of accounting information?
A. Investors
B. Creditors
C. Government
D. Weather forecasters
Answer: D
5. The accounting equation is
A. Assets = Liabilities − Capital
B. Assets = Capital + Liabilities
C. Capital = Assets + Liabilities
D. Assets + Liabilities = Capital
Answer: B
6. Which accounting concept states that the business is separate from its owner?
A. Prudence Concept
B. Business Entity Concept
C. Matching Concept
D. Dual Aspect Concept
Answer: B
7. The source document used when goods are sold on credit is the
A. receipt
B. sales invoice
C. cheque
D. payment voucher
Answer: B
8. A receipt is issued as evidence of
A. goods ordered
B. money received
C. goods returned
D. bank transfer only
Answer: B
9. The journal is also known as the
A. ledger
B. day book
C. cash book
D. trial balance
Answer: B
10. The double-entry principle states that every transaction affects
A. one account only
B. two or more accounts with equal debit and credit entries
C. only cash
D. only liabilities
Answer: B
2026 NECO Objective & Essay Theory and Practice Accounting Examination Questions and Answers
11. An account that receives value is
A. credited
B. debited
C. balanced
D. transferred
Answer: B
12. Which of the following accounts is a real account?
A. Cash Account
B. Rent Account
C. Salary Account
D. Commission Account
Answer: A
13. The ledger is a book that contains
A. source documents only
B. all individual accounts of a business
C. stock records only
D. payroll information only
Answer: B
14. A trial balance is prepared mainly to
A. determine business profit
B. test the arithmetic accuracy of ledger entries
C. prepare invoices
D. calculate tax
Answer: B
15. A trial balance is usually prepared at the end of the
A. accounting period
B. business day
C. financial transaction
D. month only
Answer: A
16. The cash book records
A. only credit transactions
B. cash and bank transactions
C. purchases only
D. depreciation only
Answer: B
17. A cheque paid into the bank is entered on the
A. credit side of the cash column
B. debit side of the bank column
C. debit side of the cash column
D. credit side of the bank column
Answer: B
18. The petty cash book is maintained mainly for
A. large capital expenditure
B. small routine expenses
C. fixed assets
D. long-term investments
Answer: B
19. The imprest system helps to
A. eliminate cash completely
B. control petty cash expenditure
C. increase fraud
D. reduce accounting records
Answer: B
20. Bank reconciliation is prepared to
A. compare profits between two companies
B. reconcile differences between the cash book and bank statement
C. calculate depreciation
D. prepare payroll
Answer: B
21. An outstanding cheque is one that has been
A. issued but not yet presented for payment
B. dishonoured by the bank
C. lost permanently
D. cancelled before issue
Answer: A
22. A bank charge appearing on the bank statement but not yet recorded in the cash book requires the cash book to be
A. credited
B. debited
C. balanced only
D. ignored
Answer: A
23. Errors that do not affect the agreement of a trial balance are known as
A. compensating errors only
B. errors of principle, omission, commission, and original entry
C. balancing errors only
D. casting errors only
Answer: B
24. Depreciation is the
A. appreciation in the value of an asset
B. gradual reduction in the value of a fixed asset due to use, wear and tear, or obsolescence
C. purchase of new machinery
D. repair of equipment
Answer: B
25. Which depreciation method charges an equal amount every year?
A. Reducing Balance Method
B. Straight-Line Method
C. Revaluation Method
D. Sum-of-the-Years’-Digits Method
Answer: B
26. The main purpose of providing depreciation is to
A. overstate profits
B. match the cost of an asset with the revenue it helps generate
C. reduce liabilities
D. increase owner’s capital artificially
Answer: B
27. A control account is prepared mainly to
A. replace the general ledger
B. check the accuracy of personal accounts
C. record cash transactions
D. prepare financial statements
Answer: B
28. Purchases Returns are recorded in the
A. Sales Day Book
B. Purchases Returns Day Book
C. Journal Proper
D. Cash Book
Answer: B
29. The final accounts of a sole trader consist mainly of
A. Cash Book and Journal
B. Trading Account, Profit and Loss Account, and Statement of Financial Position
C. Trial Balance and Ledger
D. Sales Account and Purchases Account
Answer: B
30. Gross Profit is calculated as
A. Sales − Cost of Goods Sold
B. Sales − Operating Expenses
C. Gross Profit − Expenses
D. Sales + Purchases
Answer: A
2026 NECO Objective & Essay Theory and Practice Accounting Examination Questions and Answers
31. A Manufacturing Account is prepared mainly to determine the
A. selling price of goods
B. cost of goods manufactured during the accounting period
C. gross profit only
D. net profit only
Answer: B
32. Prime Cost consists of
A. Direct Materials + Direct Labour + Direct Expenses
B. Factory Rent + Factory Electricity
C. Selling Expenses + Administrative Expenses
D. Purchases + Sales Returns
Answer: A
33. Factory overheads include
A. Carriage inward
B. Factory rent and factory electricity
C. Office salaries
D. Advertising expenses
Answer: B
34. A partnership is formed by
A. one person
B. two or more persons who agree to carry on business together for profit
C. government officials
D. shareholders only
Answer: B
35. The document governing the relationship among partners is called the
A. Memorandum of Association
B. Articles of Association
C. Partnership Agreement (Partnership Deed)
D. Prospectus
Answer: C
36. Interest on Capital is allowed to partners in order to
A. punish partners
B. reward partners for the use of their capital in the business
C. reduce profits
D. increase liabilities
Answer: B
37. The Appropriation Account is prepared to
A. calculate depreciation
B. distribute profit among partners
C. record purchases
D. prepare bank reconciliation
Answer: B
38. A limited liability company obtains its capital mainly through
A. loans only
B. shares issued to shareholders
C. government grants only
D. donations
Answer: B
39. A shareholder is a
A. creditor
B. owner of shares in a company
C. company secretary
D. supplier
Answer: B
40. Dividends are paid from
A. business expenses
B. distributable profits
C. liabilities
D. depreciation
Answer: B
41. Incomplete records are commonly associated with
A. multinational corporations
B. small sole proprietorship businesses
C. government ministries
D. commercial banks
Answer: B
42. A Statement of Affairs resembles a
A. Trial Balance
B. Statement of Financial Position
C. Cash Book
D. Journal
Answer: B
43. A Receipts and Payments Account records
A. only revenue items
B. all cash receipts and payments during a period
C. only capital items
D. only credit transactions
Answer: B
44. The Income and Expenditure Account is prepared mainly by
A. trading companies
B. non-profit-making organizations
C. manufacturing firms only
D. banks only
Answer: B
45. Subscription received by a club is regarded as
A. capital receipt
B. revenue income
C. loan
D. liability only
Answer: B
46. An error of omission occurs when
A. a transaction is recorded twice
B. a transaction is completely left out of the books
C. wrong figures are added
D. wrong account is balanced
Answer: B
47. The Suspense Account is opened when
A. the Trial Balance agrees
B. the Trial Balance fails to agree temporarily
C. cash is stolen
D. depreciation is calculated
Answer: B
48. The Current Ratio is calculated as
A. Current Assets ÷ Current Liabilities
B. Gross Profit ÷ Sales
C. Net Profit ÷ Capital
D. Sales ÷ Fixed Assets
Answer: A
49. The main purpose of accounting ratios is to
A. increase expenses
B. evaluate the financial performance and position of a business
C. prepare invoices
D. determine taxation only
Answer: B
50. Inventory (Stock) is valued according to the principle of
A. historical cost only
B. cost or net realizable value, whichever is lower
C. selling price only
D. replacement cost only
Answer: B
2026 NECO Objective & Essay Theory and Practice Accounting Examination Questions and Answers
51. FIFO stands for
A. First In, First Out
B. First Investment, First Output
C. Final Input, Final Output
D. Fixed Investment Fund Option
Answer: A
52. Which inventory valuation method assumes that the latest goods purchased are sold first?
A. FIFO
B. LIFO
C. Weighted Average
D. Specific Identification
Answer: B
53. Public Sector Accounting deals primarily with the financial records of
A. sole traders
B. government ministries, departments, and agencies
C. partnerships only
D. private companies only
Answer: B
54. One objective of Public Sector Accounting is to ensure
A. accountability in the use of public funds
B. maximum private profit
C. reduction of government services
D. elimination of taxation
Answer: A
55. Which of the following is an example of a capital expenditure?
A. Office rent
B. Purchase of a delivery van
C. Electricity bill
D. Salaries and wages
Answer: B
56. Which of the following is classified as a current asset?
A. Building
B. Machinery
C. Debtors (Accounts Receivable)
D. Motor vehicle used for business
Answer: C
57. The accounting concept that requires expected losses to be recognized early is known as the
A. Prudence Concept
B. Money Measurement Concept
C. Business Entity Concept
D. Historical Cost Concept
Answer: A
58. Professional accountants are expected to maintain
A. secrecy for fraudulent activities
B. honesty, integrity, objectivity, and confidentiality
C. personal bias
D. manipulation of financial statements
Answer: B
59. Financial statements are prepared mainly to
A. satisfy competitors
B. provide useful financial information to users for decision-making
C. increase tax liabilities unnecessarily
D. advertise products
Answer: B
60. One major objective of Financial Accounting is to
A. provide reliable financial information for planning, control, and decision-making
B. eliminate business risks completely
C. guarantee business profits
D. replace management
Answer: A
2026 NECO Objective & Essay Theory and Practice Accounting Examination Questions and Answers
Paper II
Essay Questions
Instructions
- Answer Question 1 (Compulsory) and any four other questions.
- Show all workings clearly for practical questions.
- Where applicable, present accounts in the correct accounting format.
Question 1 (Compulsory)
(a) Define Financial Accounting.
(b) Explain five objectives of Financial Accounting.
(c) State and explain five users of accounting information.
Model Answer
(a) Definition of Financial Accounting
Financial Accounting is the systematic process of identifying, recording, classifying, summarizing, analyzing, interpreting, and communicating the financial transactions of a business to interested users through financial statements. It enables stakeholders to assess the financial performance and financial position of an organization over a specific accounting period.
Financial Accounting follows recognized accounting standards and principles to ensure that financial information is reliable, consistent, relevant, and comparable.
(b) Objectives of Financial Accounting
1. To Maintain Accurate Financial Records
Financial Accounting provides a complete and systematic record of all business transactions. These records help management monitor business activities and provide evidence of transactions whenever required.
2. To Determine Profit or Loss
One of the primary objectives is to determine whether the business made a profit or incurred a loss during a given accounting period. This is achieved through the preparation of the Trading Account and the Profit and Loss Account.
3. To Determine the Financial Position
Financial Accounting shows the financial strength of a business by preparing the Statement of Financial Position. This statement presents the assets, liabilities, and owner’s equity at a particular date.
4. To Assist Decision-Making
Financial information assists owners, investors, creditors, managers, and government agencies in making informed economic decisions regarding investment, lending, taxation, budgeting, and expansion.
5. To Ensure Accountability
Proper accounting records promote accountability by showing how business resources have been acquired and utilized. This is especially important in government organizations, public institutions, and corporate entities where transparency is required.
(c) Users of Accounting Information
1. Business Owners
Owners use accounting information to determine profitability, assess financial performance, evaluate investments, and make strategic business decisions.
2. Managers
Managers rely on financial reports for planning, controlling operations, budgeting, cost management, and evaluating business performance.
3. Investors
Potential and existing investors analyze financial statements before deciding whether to invest additional funds in a business.
4. Creditors and Financial Institutions
Banks, suppliers, and other lenders examine accounting information to determine whether a business can repay loans and meet its financial obligations.
5. Government
Government agencies use accounting information for tax assessment, regulatory compliance, national economic planning, and statistical analysis.
Conclusion
Financial Accounting provides reliable financial information that enables various stakeholders to evaluate business performance, ensure accountability, and make sound economic decisions.
Question 2
On 1 January 2025, James Enterprises had the following balances:
- Cash in Hand – ₦45,000
- Cash at Bank – ₦250,000
During January, the following transactions took place:
- Jan. 3: Received cash from a debtor ₦90,000.
- Jan. 5: Paid rent by cheque ₦35,000.
- Jan. 8: Purchased office furniture by cheque ₦120,000.
- Jan. 12: Cash sales ₦75,000.
- Jan. 16: Paid salaries in cash ₦40,000.
- Jan. 20: Deposited ₦50,000 cash into the bank.
- Jan. 25: Withdrew ₦30,000 from the bank for office use.
- Jan. 30: Paid electricity bill by cheque ₦18,000.
Required
Prepare a Two-Column Cash Book.
Model Answer
James Enterprises
Two-Column Cash Book
| Date | Particulars | Cash (₦) | Bank (₦) | Date | Particulars | Cash (₦) | Bank (₦) |
|---|---|---|---|---|---|---|---|
| Jan.1 | Balance b/d | 45,000 | 250,000 | Jan.5 | Rent | – | 35,000 |
| Jan.3 | Debtor | 90,000 | – | Jan.8 | Furniture | – | 120,000 |
| Jan.12 | Cash Sales | 75,000 | – | Jan.16 | Salaries | 40,000 | – |
| Jan.20 | Bank (Contra) | – | 50,000 | Jan.20 | Cash (Contra) | 50,000 | – |
| Jan.25 | Bank (Contra) | 30,000 | – | Jan.25 | Cash (Contra) | – | 30,000 |
| Jan.30 | Electricity | – | 18,000 | ||||
| Jan.31 | Balance c/d | 150,000 | 97,000 | ||||
| Total | 240,000 | 330,000 | Total | 240,000 | 330,000 |
Closing Balances
- Cash in Hand = ₦150,000
- Cash at Bank = ₦97,000
2026 NECO Objective & Essay Theory and Practice Accounting Examination Questions and Answers
Question 3
Explain the causes of depreciation and discuss four methods of calculating depreciation.
Model Answer
Meaning of Depreciation
Depreciation is the gradual reduction in the value of a fixed asset over its useful life due to wear and tear, usage, passage of time, obsolescence, or depletion. It is recognized as an expense because fixed assets contribute to generating revenue over several accounting periods.
Causes of Depreciation
1. Wear and Tear
Continuous use of machinery, vehicles, and equipment causes physical deterioration, reducing their efficiency and value over time.
2. Obsolescence
Technological advancements may render existing assets outdated even when they are still functional. Businesses often replace obsolete equipment with more efficient alternatives.
3. Passage of Time
Certain assets, such as leasehold properties and patents, lose value simply because their legal or useful lives expire with time.
4. Depletion
Natural resources such as mines, oil wells, and quarries gradually lose value as the available resources are extracted.
5. Accidental Damage
Fire, flooding, vandalism, or accidents may reduce the value of assets before the end of their expected useful lives.
Methods of Calculating Depreciation
1. Straight-Line Method
Under this method, an equal amount of depreciation is charged each year throughout the useful life of the asset.
Formula:
Annual Depreciation = (Cost − Residual Value) ÷ Useful Life
This method is simple and widely used for office furniture, buildings, and equipment.
2. Reducing Balance Method
Depreciation is charged at a fixed percentage on the asset’s book value each year. As the book value decreases, the depreciation expense also decreases.
This method is suitable for assets such as motor vehicles and machinery, which lose more value during the early years of use.
3. Revaluation Method
The value of the asset is determined at the beginning and end of each accounting period. The difference between these values represents depreciation.
This method is commonly applied to loose tools, livestock, and small equipment whose values fluctuate frequently.
4. Units of Production Method
Depreciation is calculated based on the actual usage or output of the asset rather than the passage of time.
This method is appropriate for manufacturing equipment where wear depends largely on production volume.
Importance of Depreciation
- Ensures profits are not overstated.
- Reflects the true value of assets.
- Matches expenses with revenue earned.
- Assists in planning for asset replacement.
- Improves the accuracy of financial statements.
Conclusion
Depreciation is an essential accounting adjustment that ensures financial statements present a fair and realistic view of a business’s financial position. Selecting an appropriate depreciation method depends on the nature of the asset and how its economic benefits are consumed.
