Tag: adjustments in preparation of financial statements

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Questions Related to adjustments in preparation of financial statements

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

' Taxes owned but payable in the following period' should be classified as __________________.

  1. Accrued assets

  2. Accrued liability

  3. Prepaid expense

  4. Unrearned revenue
Reveal answer Fill a bubble to check yourself
B Correct answer
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.

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

Life insurance premium received by an insurance company' should be classified as _______________.

  1. Accrued asset

  2. Accrued liability

  3. Prepaid expense

  4. Unearned revenue
Reveal answer Fill a bubble to check yourself
D Correct answer
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.

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

'Interest earned but not received' should be classified as _____________.

  1. Accrued asset

  2. Accrued liability

  3. Prepaid expense

  4. Unearned revenue
Reveal answer Fill a bubble to check yourself
A Correct answer
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.

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

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

  1. Income received in advance

  2. Asset

  3. Capital

  4. None
Reveal answer Fill a bubble to check yourself
A Correct answer
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.

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

Accrued interest will be ________ to interest account.

  1. Debited

  2. Credited

  3. No effect

  4. None
Reveal answer Fill a bubble to check yourself
B Correct answer
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.

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

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

  1. Added

  2. Deducted

  3. Rounded off

  4. None
Reveal answer Fill a bubble to check yourself
A Correct answer
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.

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

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

  1. 1520

  2. 1500

  3. 2000

  4. 2200
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

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

                                                                 = 1500

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

Subscription received in advance Rs. 500 shall be ______________________.

  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
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Subscription received in advance is money collected for a future period, creating an obligation for the business. Therefore, it is deducted from the total subscription income for the current period and recorded as a liability on the balance sheet.