Day: December 15, 2019

Advertising expenditure paid by a firm during its first year in business but relating to a subsequent accounting period should be shown in the financial statements for the current accounting period . . .

Select ONE answer:

1. as a prepayment in the balance sheet and as an expense in the profit and loss account.
2. as a deduction from the figure for the bank in the balance sheet and as revenue in the profit and loss account.
3. as a prepayment in the balance sheet and as a deduction from the total of advertising expenditure paid in the profit and loss account.
4. as an accrual in the balance sheet and as revenue in the profit and loss account.

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 3

1. Not correct
2. Not correct
3. Correct – Any expense paid in advance is a prepayment. In accordance with the accruals concept, the amount to be shown in the profit and loss account in relation to any expense is the amount of the expense relevant to that period. In this case, the relevant amount is less than the amount paid, by the amount of the prepayment.
4. Not correct

 

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