Tag: need for adjustments

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Multiple choice book keeping and accountancy accounting equation meaning, objectives and need of adjustments need for adjustments accounting equations and transactions

 _________ are adjusted at the time of preparing financial statements. 

  1. Depreciation on fixed assets

  2. Interest on capital

  3. Closing stock

  4. All of the above
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

According to accrual concept of accounting, the profit or loss for an accounting year is not based on the revenues realised in cash and the expenses paid in cash during the year because there may be some receipts of income and payments of expenses during the current year which may partially relate to the previous year or the next year. There are certain items which are not recorded on day-to-day basis such as depreciation on fixed assets, interest on capital, etc. These are adjusted at the time of preparing financial statements. The purpose of making various adjustments is to ensure that the final accounts reveal the true profit or loss and the true financial position of the business. The items which usually need adjustments are: 

1. Closing stock
2. Outstanding expenses
3. Prepaid/Unprepaid expenses
4. Accrued income
5. Income received in advance
6. Depreciation
7. Bad debts
8. Provision for doubtful debts
9. Provision for discount on debtors
10. Manager's commisssion
11. Interest on capitral

Multiple choice book keeping and accountancy accounting equation meaning, objectives and need of adjustments need for adjustments accounting equations and transactions

 The opening and closing stock can be adjusted through _____ account. 

  1. Sales

  2. Purchases

  3. Debtors

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

The closing stock represents the cost of unsold goods lying in the stores at the end of the accounting period. The adjustment with regard to the closing stock is done by crediting it to the trading and profit and loss account and by showing it on the asset side of the balance sheet. The closing stock of the year becomes the opening stock of the next year and is reflected on the trial balance of the next year. Sometimes, the opening and closing stock are adjusted through the purchases account. In this case, the entry recorded is as follows:

Closing Stock A/c Dr.
        To Purchases A/c

Multiple choice book keeping and accountancy accounting equation meaning, objectives and need of adjustments need for adjustments accounting equations and transactions

Salaries & wages outstanding will be added to ________ account.

  1. Wages

  2. Assets

  3. Liabilities

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

The entry to bring such expenses into account is:

Concerned Expense A/c 
     To Outstanding Expense A/c
The above entry opens a new account called Outstanding Expenses which is shown on the liabilities side of the balance sheet. The amount of outstanding expenses is added to the total expenses under a particular head for the purpose of preparing trading and profit and loss account. Salaries & wages outstanding will be added to the salaries account.

Multiple choice book keeping and accountancy accounting equation meaning, objectives and need of adjustments need for adjustments accounting equations and transactions

The adjusted purchases shall be debited to the ________.

  1. Profit and loss account

  2. Balance sheet

  3. Trading and profit and loss  account

  4. Not recorded
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

The closing stock represents the cost of unsold goods lying in the stores at the end of the accounting period. 

The adjustment with regard to the closing stock is done by crediting it to the trading and profit and loss account and by showing it on the asset side of the balance sheet.
 The closing stock of the year becomes the opening stock of the next year and is reflected on the trial balance of the next year. Sometimes, the opening and closing stock are adjusted through purchases account. In that case, the entry recorded as follows:
Closing Stock A/c Dr.

       To Purchases A/c
This entry reduces the amount in the purchases account and is also known as adjusted purchases. Another important point to be noted is that when the opening and closing stocks are adjusted through purchases, the trial balance does not show any opening stock. Instead, the closing stock appears in the trial balance and so also the adjusted purchases. In such a situation, the adjusted purchases should be debited to the trading and profit and loss account.

Multiple choice book keeping and accountancy accounting equation meaning, objectives and need of adjustments need for adjustments accounting equations and transactions

Opening and closing stock are adjusted through purchases account. In that case, the entry recorded is ____________________.

  1. Opening Stock A/c Dr.

    To Purchases A/c

  2. Closing Stock A/c Dr.

    To Purchases A/c

  3. Cost of Goods Sold A/c Dr.

    To Closing stock A/c

  4. Purchases A/c Dr.

    To Closing Stock A/c
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

The correct entry is:
Closing Stock A/c.....Dr.
   To Purchases A/c
This entry reduces the amount in the purchases account and is also known as adjusted purchases which is shown on the debit side of the trading and profit and loss account.

Multiple choice book keeping and accountancy accounting equation meaning, objectives and need of adjustments need for adjustments accounting equations and transactions

All adjustment  are reflected in final accounts at ____  places to complete double entry.

  1. 2

  2. 3

  3. 4

  4. 5
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Each adjusting entry usually affects one income statement account (a revenue or expense account) and one balance sheet account (an asset or liability account).

Multiple choice book keeping and accountancy accounting equation meaning, objectives and need of adjustments need for adjustments accounting equations and transactions

The value of closing stock is equal to _______________.

  1. Sales -Opening stock- Purchases

  2. Sales- Opening stock + Purchases

  3. Sales + Opening stock + Purchases

  4. Sales + Opening stock -Purchases
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Sales = Opening stock + Purchase - Closing Stock

Hence , it could be written as
Closing stock = Sales - Opening stock -purchases

Multiple choice book keeping and accountancy accounting equation meaning, objectives and need of adjustments need for adjustments accounting equations and transactions

If there is no opening or closing stock, the total of purchases and direct expenses is taken as _______.

  1. Cost of goods manufactured

  2. Total sales

  3. Cost of goods sold

  4. Purchases
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

If there is no opening or closing stock, the total purchases and direct expenses is taken as Cost of goods sold.
Op.Stock + Purchases + Direct Expenses - Cl. Stock = Cost of Goods Sold
Rs. 0 + Purchases +Direct Expenses - Rs. 0 = Cost of Goods Sold
Purchases + Direct Expenses = Cost of Goods Sold.

Multiple choice book keeping and accountancy accounting equation meaning, objectives and need of adjustments need for adjustments accounting equations and transactions

________ = exp paid + o/s expense - prepaid exp.

  1. Total Expense

  2. Total income

  3. Total assets

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

Total Expenses means for any period for which such Total Expenses are being determined, the sum of the total gross cash expenditures of the Company or any subsidiary during such period, including all operating expenses, incentive fees, interest expense and taxes.