Tag: adjustments in preparation of financial statements

Questions Related to adjustments in preparation of financial statements

A prepayment of insurance premium will appear in the Balance Sheet and in the Insurance Account respectively as.

book keeping and accountancy adjustments in preparation of financial statements outstanding and prepaid expenses outstanding expenses need for adjustment, closing stock and outstanding expenses

  1. A liability and a debit balance

  2. An asset and a debit balance

  3. An asset and a credit balance

  4. None of the above

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Correct Option: B
Explanation:

A current asset which indicates the cost of the insurance contract (premiums) that have been paid in advance. It represents the amount that has been paid but has not yet expired as of the balance sheet date. A related account is Insurance Expense, which appears on the income statement and shown on balance sheet as asset.

The adjustment to be made for prepaid expenses is?

book keeping and accountancy adjustments in preparation of financial statements outstanding and prepaid expenses outstanding expenses need for adjustment, closing stock and outstanding expenses

  1. Add prepaid expenses to respective expenses and show it as an asset

  2. Deduct prepaid expenses from respective expenses and show it as an asset

  3. Add prepaid expenses to respective expenses and show it is a liability

  4. Deduct prepaid expenses from respective expenses and show it as a liability

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Correct Option: B

While preparing final account, to adjust prepaid expenses which of the following adjustment entry will be passed?

Prepaid Expenses A/cTo Expenses A/c Dr.
Outstanding Expenses A/cTo Prepaid Expenses A/c Dr.
Prepaid Expenses A/cTo Outstanding Expenses A/c Dr.
Prepaid Expenses A/cTo Profit & Loss A/c Dr.
book keeping and accountancy adjustments in preparation of financial statements outstanding and prepaid expenses outstanding expenses need for adjustment, closing stock and outstanding expenses

  1. A

  2. B

  3. C

  4. D

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Correct Option: A

Prepaid expenses are valued on the Balance Sheet at.

book keeping and accountancy adjustments in preparation of financial statements outstanding and prepaid expenses outstanding expenses need for adjustment, closing stock and outstanding expenses

  1. Replacement cost

  2. Current cost

  3. Cost to acquire less accumulated amortization

  4. Cost less expired portion

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Correct Option: D

If the insurance premium paid is Rs. $1,000$ and prepaid insurance is Rs. $300$, the amount of insurance premium shown in Profit & Loss A/c will be.

book keeping and accountancy adjustments in preparation of financial statements outstanding and prepaid expenses outstanding expenses need for adjustment, closing stock and outstanding expenses

  1. Rs. $1,300$

  2. Rs. $700$

  3. Rs. $1,000$

  4. Rs. $300$

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Correct Option: B

In case of unexpired entry following entry should be made ______________.

book keeping and accountancy adjustments in preparation of financial statements outstanding and prepaid expenses outstanding expenses need for adjustment, closing stock and outstanding expenses

  1. It should be shown as an asset in the balance sheet

  2. It is shown as a expense in profit and loss account

  3. Both a & b

  4. None of the above

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Correct Option: C

Insurance paid in advance would be treated in the Balance sheet as _________________.

book keeping and accountancy adjustments in preparation of financial statements outstanding and prepaid expenses outstanding expenses need for adjustment, closing stock and outstanding expenses

  1. Non current asset

  2. Current asset

  3. Intangible sheet

  4. Deferred expense

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Correct Option: A

If the insurance Rs.premium paid is Rs.$1,000$ and prepaid insurance is Rs.$300$, the amount of Insurance premium shown in profit and loss account will be _____________.

book keeping and accountancy adjustments in preparation of financial statements outstanding and prepaid expenses outstanding expenses need for adjustment, closing stock and outstanding expenses

  1. Rs.$1,300$

  2. Rs.$700$

  3. Rs.$1,000$

  4. Rs.$300$

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Correct Option: A

Prepaid Insurance is an example of __________.

book keeping and accountancy adjustments in preparation of financial statements outstanding and prepaid expenses outstanding expenses need for adjustment, closing stock and outstanding expenses

  1. Increase in asset & decrease in owner's liability

  2. Increase in liability & decrease in owner's liability

  3. Decrease in liability & owner's liability

  4. Increase in asset & owner's liability

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Correct Option: D

Prepaid Expense of Financial Year related with ___________.

book keeping and accountancy adjustments in preparation of financial statements outstanding and prepaid expenses outstanding expenses need for adjustment, closing stock and outstanding expenses

  1. Previous Financial Year

  2. Following Financial Year

  3. Current Financial Year

  4. None

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Correct Option: B