Which of the following statements is correct?
Select ONE answer:
- The accounting concept which gives rise to adjustments at the end of an accounting period in respect of accruals and prepayments is the consistency concept.
- A prepayment adjustment should be made in respect of each expense which is overpaid at the year-end.
- Revenue should not be shown in the profit and loss account unless the associated money has been received.
- None of the above.
Show your workings to arrive at your answer, and explain and justify your reasons:
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This multiple-choice question is suitable for Accounting KS5 classes.
The answer is 2
- Not correct – The accounting concept which gives rise to adjustments at the end of an accounting period in respect of accruals and prepayments is the accruals concept.
- Correct
- Not correct – Revenue should be shown in the profit and loss account even when the associated payment has not been received so long as the revenue relates to the current accounting period and payment is likely to be received. For example, credit sales, where payment has not yet been received are included in the profit and loss account as well as cash sales, where payment has been received. The amount not yet received is shown as debtors in the balance sheet.
- Not correct
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