Tag: need for adjustment, closing stock and outstanding expenses

Questions Related to need for adjustment, closing stock and outstanding expenses

From the following particulars, calculate the amount of income to be credited to profit and loss account for the year ended $31$st March $2012$.

$31-3-2011$ $31-3-2012$
Outstanding Income $1,500$ $1,200$
Income received in advance $900$ $540$

A sum of Rs. $14,670$ was received as income during the year ended $31$st March $2012$.

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. $15,930$

  2. $14,010$

  3. $15,330$

  4. $14,730$

Show answer
Correct Option: D

Unaccrued Interest is an example of __________.

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. 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

Show answer
Correct Option: B

Accrued Interest is an example of _________.

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. 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

Show answer
Correct Option: D

Star Tour has a Rs. 5,000 account receivable from Mr. X. On February 5, Mr. X makes a partial payment of Rs. 3,000 to Star Tours. The journal entry made on February 5 by Star Tours to record this transaction includes:

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. A credit to the cash received account of Rs. 3000

  2. A credit to the Accounts receivable account of Rs 3000

  3. A debit to the Account of Rs. 2000

  4. A debit to the accounts receivable account of Rs 2000

Show answer
Correct Option: B

On receipt of Rs 975 from Shyam on his account for Rs 1000 Shyam's Account should be credited with ____________.

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. Rs 1000

  2. Rs 975

  3. Rs 25

  4. None of these

Show answer
Correct Option: B

What will be the treatment of "accrued income" if appearing in the Trial Balance.

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. It will be shown on the assets side as current assets in the balance sheet

  2. It will be shown on the liabilities side as current liability in the balance sheet

  3. It will be shown on the debit side of trading account as an expense

  4. It will be shown on the credit side of profit and loss account as an income

Show answer
Correct Option: A
Explanation:

Accrued Income is treated as an asset for the company , hence it will be shown in Asset Side in the Balance Sheet. 

In balance sheet, accrued income is shown under which head of assets _______________.

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. Intangible Assets

  2. Current Assets

  3. Fictitious Assets

  4. Tangible Assets

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 current accounting year but have not been actually received by the end of the same year. Such incomes are known as accrued incomes. 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 under the head current assets of the balance sheet

 Give effect of the following adjustment entry:
 The accrued rent is Rs. 1,900.  

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. Rent A/c Dr. 1,900

    To Accrued Rent A/c 1,900

  2. Accrued Rent A/c Dr. 1,900

    To Rent A/c 1,900

  3. Accrued Rent A/c Dr. 1,900

    To Asset A/c 1,900

  4. None of the above

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 year. Such incomes are known as accrued income. The adjustment 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.
The effect of adjustment entry for  accrued rent of Rs. 1,900 is:
Accrued Rent A/c  Dr.      1,900     
      To Rent A/c                              1,900