Tag: adjustments in preparation of financial statements

Questions Related to adjustments in preparation of financial statements

Unemployment due to mechanization of agriculture 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. Seasonal

  2. Structural

  3. Industrial

  4. Personal

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Correct Option: B

Bonus under Halsey plan is paid ____________.

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. at 50% of time saved

  2. at 75% of time saved

  3. at 80% of time saved

  4. at 90% of time saved

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Correct Option: A

Which of the following items will have a debit 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. Income received in advance

  2. Bank loan

  3. Prepaid insurance premium

  4. Reserve for doubtful debts

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Correct Option: C

Which of the following stock exchange is derecognized by SEBI on 19.11.2014 on the allegations of serious irregularities in its functioning?

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. Bombay Stock Exchange

  2. Delhi Stock Exchange

  3. Calcutta Stock Exchange

  4. Bangalore Stock Exchange

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Correct Option: B

 The amount of prepaid expense is ________ from the total of the 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. neutralized

  4. None of the Above

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Correct Option: B
Explanation:

There are several items of expense which are paid in advance in the normal course of business operations. At the end of the accounting period, it is found that the benefits of such expense are not yet been fully received; a portion of its benefit would be received in the next accounting year. This portion of expense, is carried forward to the next year and is termed as prepaid expenses. The necessary adjustment in respect of prepaid expenses is:

Prepaid expense A/c Dr.
         To Concerned expense A/c
The effect of the above adjustment entry is that the amount of prepaid part is deducted from the total of the particular expense, and the new account of prepaid expense is shown on the liabilities side of the balance sheet.

Discuss the effect of the following transaction:

Ms. Pooja earns Rs. 2,000 per month. Her salary account is debited by Rs. 30,000 at the end of the year.  

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. 6,000 is the outstanding expense

  2. Rs. 30,000 is asset

  3. Rs. 6,000 is the prepaid expense

  4. Rs. 30,000 is liabilities

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Correct Option: C
Explanation:

The necessary adjustment in respect of prepaid expenses is made by recording the following entry:

Prepaid expense A/c Dr.
      To Concerned expense A/c
The effect of the above adjustment entry is that the amount of prepaid part is deducted from the total of the particular expense, and the new account of prepaid expense is shown on the assets side of the balance sheet.

Ms. Pooja earns Rs. 2,000 per month. Her salary account is debited by Rs. 30,000 at the end of the year. This implies that Pooja has over payment of Rs. 6,000 in his salary account. Hence, correct expense on account of salary during the current period will be Rs. 24,000 instead of Rs. 30,000. 
Rs. 24,000 is to be shown as expense on account of salary in profit and loss account and recognize a current asset of Rs. 6,000 as an advance salary.
 It will be termed as prepaid expense.

 Expenses which are paid in advance is termed 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. Prepaid expense

  2. Outstanding expense

  3. Unpaid expense

  4. None of the above

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Correct Option: A
Explanation:

There are several items of expense which are paid in advance in normal course of business operations. At the end of the accounting year, it is found that the benefits of such expenses have not been fully received; a portion of its benefit would be received in the next accounting year. This portion of expense, is carried forward to the next year and is termed as prepaid expenses. The necessary adjustment in respect of prepaid expenses is made by recording the following entry:

Prepaid Expense A/c Dr.
       To Concerned Expense A/c
The effect of the above adjustment entry is that amount of prepaid part is deducted from the total of the particular expense, and the prepaid account is shown on the assets side of the balance sheet.

'Subscriptions collected in advance by a publisher' 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. Accrues liability

  3. Unearned revenue

  4. Prepaid expense

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Correct Option: C
Explanation:

 Deferred revenue is common with subscription-based products or services that require prepayments. Examples of unearned revenue are rent payments received in advance, prepayment received for newspaper subscriptions, annual prepayment received for the use of software, and prepaid insurance.

Outstanding and prepaid expenses and incomes are taken into account in determining profit or loss under _________________.

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. Cash system of accounting.

  2. Mercantile system of accounting.

  3. Both (A) and (B).

  4. None of the above.

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Correct Option: B
Explanation:

Accrual system of Accounting is also known as the mercantile system of accounting wherein the transactions are recognized and recorded as and when they take place. 

Under the accrual accounting method, the revenue is recorded when it is actually earned, and the expenses are reported when they are incurred.
Hence,Outstanding and prepaid expenses and incomes are taken into account in determining profit or loss under mercantile /Accrual system of accounting.

When item is shown on the debit side of a 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. Purchase returns

  2. Rent Outstanding

  3. Prepaid Expenses

  4. None

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Correct Option: C
Explanation:

A trial balance is the accounting equation of our business laid out in detail. It has our assets, expenses and drawings on the left (the debit side) and our liabilities, revenue and owner's equity on the right (the credit side)

Hence , Prepaid expense is an expense which is shown in Dr. side.