Tag: adjustments in preparation of financial statements

Questions Related to adjustments in preparation of financial statements

' Taxes owned but payable in the following period' should be classified 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. Accrued assets

  2. Accrued liability

  3. Prepaid expense

  4. Unrearned revenue

Show answer
Correct Option: B
Explanation:

Examples of Accrued Liabilities Employees may have performed work but have not yet received wages. Interest on loans may be accrued if interest fees have been incurred since the previous loan payment. Taxes owed to governments may be accrued because they may not be due until the next tax reporting period.

Life insurance premium received by an insurance company' should be classified 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. Accrued asset

  2. Accrued liability

  3. Prepaid expense

  4. Unearned revenue

Show answer
Correct Option: D
Explanation:

The life insurance premium should be classified as unearned revenue because against this amount still the company has to render service.  Actually the insurance company will treat each year pro-rata amount of premium received as income.  

For example insurance company receives Rs.10000 as premium for 10 years.  First it shoud be treated as unearned revenue and then each year Rs.1000 should be shifted from this account to income account.

'Interest earned but not received' should be classified 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. Accrued asset

  2. Accrued liability

  3. Prepaid expense

  4. Unearned revenue

Show answer
Correct Option: A
Explanation:

Interest that is due to the company at the end of the accounting period but not yet received is classified as accrued interest receivable.

To make the adjusting journal entry, debit the current assets account and credit income received on the income statement with the accrued amount due.

The portion of income belonging to next accounting year is called _______.

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. Income received in advance

  2. Asset

  3. Capital

  4. None

Show answer
Correct Option: A
Explanation:

Sometimes earned revenue that belongs to a future accounting period is received in the current accounting period, such income is considered as income received in advance. It is also known as Unearned Income and is received before the related benefits are provided.

Accrued interest will be ________ to interest account.

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. Debited

  2. Credited

  3. No effect

  4. None

Show answer
Correct Option: B
Explanation:

The amount of accrued interest for the recipient of the payment is a debit to the interest receivable (asset) account and a credit to the interest revenue account. The debit is rolled into the balance sheet (as a short-term asset) and the credit into the income statement.

Accrued income is ______ to the expenses in the profit and loss account.

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. Added

  2. Deducted

  3. Rounded off

  4. None

Show answer
Correct Option: A
Explanation:

The Accrued Income A/c appears on the assets side of the Balance Sheet. While preparing the Trading and Profit and Loss A/c we need to add the amount of accrued income to that particular income.

Accured income is an income which is __________ but not 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. Spent

  2. Earned

  3. Occurred

  4. None

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Correct Option: B
Explanation:

Accrued revenues are revenues that are earned in one accounting period, but cash is not received until another accounting period.

Calculate Outstanding interest on 10 % govt bonds Rs. 15000.

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. 1520

  2. 1500

  3. 2000

  4. 2200

Show answer
Correct Option: B
Explanation:

Calculation of Interest on Govt Bonds = 15000 * 10 / 100 

                                                                 = 1500

Accrued income is shown ___________ of 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. Liability

  3. Added to asset

  4. Added to liability

Show answer
Correct Option: A
Explanation:

Accrued income is usually listed in the current assets section of the balance sheet in an accrued receivables account.

Subscription received in advance Rs. 500 shall be ______________________.

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. Added to subscription and shown under assets

  2. Added to subscription and shown under liabilities

  3. Deducted from subscription and shown under assets

  4. Deducted from subscription and shown under liability

Show answer
Correct Option: D