Tag: adjustments in preparation of financial statements

Questions Related to adjustments in preparation of financial statements

What will be the treatment of prepaid expenses if adjustment of it is appearing outside the trial Balance?

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. Prepaid Expenses account will be debited and respective expenses account will be credited

  2. Respective expense account will be debited and prepaid expenses account will be credited

  3. Prepaid expenses account will be debited and profit and loss account will be credited

  4. Profit and loss account will be debited and prepaid expenses account will be credited

Show answer
Correct Option: A
Explanation:

Prepaid expenses are deducted from the respective accounts in trading and P & L A/c and shown in asset side in the balance sheet.

Accrued income is also been called as ________.

book keeping and accountancy adjustments in preparation of financial statements accrued income earned or accrued income need for adjustment, closing stock and outstanding expenses

  1. Outstanding income

  2. Outstanding expense

  3. Prepaid income

  4. Prepaid expense

Show answer
Correct Option: A
Explanation:

It may happen that certain items of income such as interest on loan, commission, rent, etc. are earned during the current accounting year but have not been actually received by the end of the same year. Such incomes are known as accrued income. It is the income which has been earned during a particular accounting period, also known as outstanding income. 

Examples include accrued interest, accrued rent (to be received), etc. Accrued income is recorded in the books at the end of an accounting period to show true numbers of a business.

The recording of wages earned but not yet paid is an example of an adjustment that _____________.

book keeping and accountancy adjustments in preparation of financial statements accrued income earned or accrued income need for adjustment, closing stock and outstanding expenses

  1. apportions revenues between two or more periods

  2. recordings an accrued expense

  3. recordings an unrecorded revenue

  4. None of the above.

Show answer
Correct Option: B

Payment received from debtor _______________.

book keeping and accountancy adjustments in preparation of financial statements accrued income earned or accrued income need for adjustment, closing stock and outstanding expenses

  1. decreases the total assets

  2. increases the total assets

  3. results in no change in the total assets

  4. increases the total liabilities

  5. decreases the total liabilities

Show answer
Correct Option: C

The account of accrued income will be shown on _________ side.

book keeping and accountancy adjustments in preparation of financial statements accrued income earned or accrued income need for adjustment, closing stock and outstanding expenses

  1. debit side of profit & loss account

  2. credit side of profit & loss account

  3. debit side of trading account

  4. credit side of trading account

Show answer
Correct Option: B
Explanation:

It may happen that certain items of income such as interest on loan, commission, rent, etc. are earned during the accounting year but have not been actually received by the end of the same year. Such incomes are known as accrued income. The adjusting entry for accrued income is:

Accrued Income A/c Dr.
      To Concerned Income A/c
The amount of accrued income will be added to the related income in the profit and loss account on the credit side and the new account of accrued income will appear on the asset side of the balance sheet.

Income received in advance will be shown as ________.

book keeping and accountancy adjustments in preparation of financial statements accrued income earned or accrued income need for adjustment, closing stock and outstanding expenses

  1. Current asset

  2. Current liabilities

  3. Fixed asset

  4. Fixed liabilities

Show answer
Correct Option: B
Explanation:

Sometimes, a certain income is received but the whole amount of it does not belong to the current period. The portion of the income which belongs to the next accounting period is termed as income received in advance or an Unearned Income. Income received in advance is adjusted by recording the following entry:

Concerned Income A/c Dr.
        To Income Received in Advance A/c 
The effect of this entry will be that the balance in he income account will be equal to the amount of income earned for the current accounting period, and the new account of income received in advance will be shown as a liability in the balance sheet.

 Amount which has accrued but is still to be received.

book keeping and accountancy adjustments in preparation of financial statements accrued income earned or accrued income need for adjustment, closing stock and outstanding expenses

  1. Outstanding Income

  2. Outstanding Expense

  3. Prepaid Income

  4. Prepaid Expense

Show answer
Correct Option: A
Explanation:

It may happen that certain items of income such as interest on loan, commission, rent, etc. are earned during the current accounting year but have not been actually received by the end of the same year. Such incomes are known as accrued income. It is also known as Outstanding income. The adjusting entry for accrued income is:

Accrued Income A/c Dr.
       To Concerned Income A/c
The amount of accrued income will be added to the related income in the profit and loss account and the new account of accrued income will appear on the asset side of the balance sheet.

 When income is received but the whole amount of it does not belong to the current period it is called as:

book keeping and accountancy adjustments in preparation of financial statements accrued income earned or accrued income need for adjustment, closing stock and outstanding expenses

  1. Pre-received income

  2. Outstanding income

  3. Capital income

  4. Revenue income

Show answer
Correct Option: A
Explanation:

Sometimes, a certain income is received but the whole amount of it does not belong  to the current period. The portion of the income which belongs to the next accounting period is termed as income received in advance. It is also known as Unearned Income or Pre-received Income. Income received in advance is adjusted by recording the following entry:

Concerned Income A/c Dr.
    To Income Received in advance A/c
The effect of this entry will be that the balance in the income account will be equal to the amount of income earned for the current accounting period and the new account of income received in advance will be shown as a liability in the balance sheet.  

What are the other names for income received in advance?

book keeping and accountancy adjustments in preparation of financial statements accrued income earned or accrued income need for adjustment, closing stock and outstanding expenses

  1. Unearned Income

  2. Accrued Income

  3. Pre-received income

  4. Both A & C

Show answer
Correct Option: D
Explanation:

Sometimes a certain income is received but the whole amount of it does not belong to the current period. The portion of the income which belongs to the next accounting period is termed as income received in advance. The other names for income received in advance is known as an Unearned Income or Pre-received Income. Income received in advance is adjusted by recording the following entry:

Concerned Income A/c Dr. 
      To Income received in advance A/c
The effect of this entry will be that the balance in the income account will, be equal to the amount of income earned for the current accounting period, and the new account of income received in advance will be shown on the liability side of the balance sheet.

Accrued income will appear on the ____ side of the balance sheet. 

book keeping and accountancy adjustments in preparation of financial statements accrued income earned or accrued income need for adjustment, closing stock and outstanding expenses

  1. Asset

  2. Liabilities

  3. Debit

  4. Credit

Show answer
Correct Option: A
Explanation:

It may happen that certain items of income such as interest on loan, commission, rent, etc. are earned during the current accounting year but have not been actually received by the end of the same year. Such incomes are known as accrued income. The adjusting entry for accrued income is:

Accrued Income A/c Dr.
     To Concerned Income A/c 
The amount of accrued income will be added to the related income in the profit and loss account and the new account of accrued income will appear on the asset side of the balance sheet.