Tag: outstanding expenses

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Questions Related to outstanding expenses

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

A prepayment of insurance premium will appear in the Balance Sheet and in the Insurance Account respectively as.

  1. A liability and a debit balance

  2. An asset and a debit balance

  3. An asset and a credit balance

  4. None of the above
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

A current asset which indicates the cost of the insurance contract (premiums) that have been paid in advance. It represents the amount that has been paid but has not yet expired as of the balance sheet date. A related account is Insurance Expense, which appears on the income statement and shown on balance sheet as asset.

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

The adjustment to be made for prepaid expenses is?

  1. Add prepaid expenses to respective expenses and show it as an asset

  2. Deduct prepaid expenses from respective expenses and show it as an asset

  3. Add prepaid expenses to respective expenses and show it is a liability

  4. Deduct prepaid expenses from respective expenses and show it as a liability
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

To adjust for prepaid expenses, you deduct the prepaid portion from the total expense in the Profit and Loss account and show the prepaid amount as an asset on the balance sheet.

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

While preparing final account, to adjust prepaid expenses which of the following adjustment entry will be passed?

Prepaid Expenses A/cTo Expenses A/c Dr.
Outstanding Expenses A/cTo Prepaid Expenses A/c Dr.
Prepaid Expenses A/cTo Outstanding Expenses A/c Dr.
Prepaid Expenses A/cTo Profit & Loss A/c Dr.

  1. A

  2. B

  3. C

  4. D
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

The adjusting entry to record a prepaid expense involves debiting the Prepaid Expenses account (to create the asset) and crediting the Expenses account (to reduce the expense).

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

Prepaid expenses are valued on the Balance Sheet at.

  1. Replacement cost

  2. Current cost

  3. Cost to acquire less accumulated amortization

  4. Cost less expired portion
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Prepaid expenses represent costs paid in advance for services or goods not yet received. On the balance sheet, they are recorded at their original cost minus the portion that has already expired or been consumed.

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

If the insurance premium paid is Rs. $1,000$ and prepaid insurance is Rs. $300$, the amount of insurance premium shown in Profit & Loss A/c will be.

  1. Rs. $1,300$

  2. Rs. $700$

  3. Rs. $1,000$

  4. Rs. $300$
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

The Profit and Loss account should reflect only the expenses related to the current period. Since the total premium is 1,000 and 300 is prepaid (an asset), the expense to be recognized is 1,000 - 300 = 700.

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

In case of unexpired entry following entry should be made ______________.

  1. It should be shown as an asset in the balance sheet

  2. It is shown as a expense in profit and loss account

  3. Both a & b

  4. None of the above
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

An unexpired expense (prepaid expense) is an asset on the balance sheet. When adjusting, it is removed from the expense account in the profit and loss statement, effectively reducing the expense for the period.

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

Prepaid Insurance is an example of __________.

  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
Reveal answer Fill a bubble to check yourself
D Correct answer
Multiple choice book keeping and accountancy adjustments in preparation of financial statements outstanding and prepaid expenses outstanding expenses need for adjustment, closing stock and outstanding expenses

Prepaid Expense of Financial Year related with ___________.

  1. Previous Financial Year

  2. Following Financial Year

  3. Current Financial Year

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

Prepaid expenses are payments made in the current period for benefits that will be received in a future or following financial year.