Tag: outstanding and prepaid expenses

Questions Related to outstanding and prepaid expenses

'A three years premium paid on a fire insurance policy' should be classified 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. Accrued asset

  2. Accrued liability

  3. Unearned revenue

  4. Prepaid expense

Show answer
Correct Option: D
Explanation:

A prepaid expense refers to an amount that a company has paid and a portion or all of it will be an expense in a later accounting period.

A prepaid expense can be recorded initially as an expense or as a current asset. 

Expenses Paid in advance are called ________. 

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 Expense

  2. O/s Expense

  3. Asset

  4. Liability

Show answer
Correct Option: A
Explanation:

Prepaid expenses are future expenses that have been paid in advance. In other words, prepaid expenses are costs that have been paid but are not yet used up or have not yet expired.

Ascertain the amount of prepaid expense if insurance of Rs. 10000 paid for one year ending on 30.06.2018 and firm closes the books on 31.03.2018.

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. 5000

  2. 4500

  3. 2500

  4. 2000

Show answer
Correct Option: A
Explanation:

Amount of Prepaid expense for year ending 30th june ,2018 

 =  10000 * 3 / 6
= 5000

Prepaid expenses is shown under ___________ side of balance side.

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. Asset

  2. Liability

  3. Debit

  4. Credit

Show answer
Correct Option: A
Explanation:

Generally, the amount of prepaid expenses that will be used up within one year are reported on a company's balance sheet as a current asset. As the amount expires, the current asset is reduced and the amount of the reduction is reported as an expense on the income statement.


Amount of prepaid expense is _______ from particular expense.

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. Added

  2. Deducted

  3. Depreciated

  4. None

Show answer
Correct Option: B
Explanation:

When expenses are paid they are deducted. However, because of the general rule regarding prepaid expenses, simply prepaying an expense does not make it immediately deductible (barring an exception due to the 12-month rule).

Income received in advance 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. A liability

  2. An asset

  3. An income

  4. An expense

Show answer
Correct Option: A
Explanation:

Under the accrual method of accounting, income that is received in advance is a liability because the company that received the money has not yet earned it and it has an obligation (a liability) to deliver the related goods or services in the future.

Rent prepaid a/c appearing in the trial balance 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. shown on the liability side of balance sheet

  2. shown on the assets side of the balance sheet

  3. shown on debit side of profit and loss A/c

  4. credited to profit and loss A/c

Show answer
Correct Option: B

A club paid subscription fees of Rs. 1,400, out of which Rs. 200 is prepaid. In such case _________________.

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. P & L A/c is debited with Rs.1,400

  2. P & L A/c is debited with Rs. 1,200

  3. Rs. 200 is shown as current asset

  4. Both (B) and (C)

  5. Both (A) and (C)

Show answer
Correct Option: D
Explanation:

Subscription fees prepaid is a current asset as its benefit will be received within a period of one year. 

Also, we debit expenses only related to the current financial year to the Profit and loss account.
Thus, the journal entry will be:
Profit and Loss A/c   .....Dr.                1200
Prepaid Subscription fees A/c ......Dr. 200
To Subscription fees A/c                               1400
Thus, option D is correct.

Prepaid insurance has an opening balance of Rs. 2,300. During the period, insurance of Rs. 1,200 expired. The adjusting entry would contain a credit _____________.

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. to prepaid insurance for Rs. 1,200

  2. to insurance expenses for Rs. 1,200

  3. to unexpired insurance for Rs. 1,100

  4. to insurance expense for Rs. 1,100

Show answer
Correct Option: A

If prepaid rent appears in trial balance, while preparing the final accounts it will be shown in.

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. Profit & Loss A/c and asset side of balance sheet

  2. Profit & Loss A/c and liability side of balance sheet

  3. Asset side of balance sheet

  4. Liability side of balance sheet

Show answer
Correct Option: C