Month: December 2019

Which of the following statements is correct?

Select ONE answer:

1. 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.
2. A prepayment adjustment should be made in respect of each expense which is overpaid at the year-end.
3. Revenue should not be shown in the profit and loss account unless the associated money has been received.
4. 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

1. 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.
2. Correct
3. 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.
4. Not correct

 

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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:

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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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The effect of the year-end adjustment required in respect of rates prepaid is . . .

Select ONE answer:

1. to decrease the figures shown in the balance sheet for both creditors and prepayments.
2. to decrease both the rates expense shown in the profit and loss account and the figure shown in the balance sheet for prepayments.
3. to increase the figures shown in the balance sheet for both prepayments and creditors.
4. to increase the figure shown in the balance sheet for prepayments and to decrease the rates expense shown in the profit and loss account.

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 4

1. Not correct
2. Not correct
3. Not correct
4. Correct – Prepayments, being money paid for benefits yet to be received, are assets. As they are amounts paid in respect of future accounting periods, the expense to be shown in the profit and loss account for a period will be less than the amount paid during that period, by the amount of the prepayment (an application of the accruals concept).

 

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Expenses relevant to an accounting period which remain unpaid at the end of the period should . . .

Select ONE answer:

1. be shown as an expense in the profit and loss account for the period and shown as a current liability in the balance sheet at the end of the period.
2. be shown as an asset in the balance sheet at the end of the period and shown as income in the profit and loss account for the period.
3. be shown as part of long-term liabilities in the balance sheet at the end of the period.
4. be netted off against prepayments on the same date and shown together, as a single figure, in the balance sheet at the end of the period.

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 1

1. Correct – Accruals. being amounts due. are a liability. As they are amounts due in respect of expenses, they must be shown as expenses in the profit and loss account.
2. Not correct – Expenses should clearly not be shown as income in the profit and loss account and amounts due but unpaid should clearly be shown as a liability in the balance sheet.
3. Not correct – Expenses due but unpaid are likely to be payable within a year of the balance sheet date. They should, therefore, be shown as current liabilities. not long-term liabilities (amounts payable after more than one year from the balance sheet date).
4. Not correct – Assets (prepayments) and liabilities (accruals) should always be shown separately in the balance sheet rather than being netted off against each other as this provides better (more complete) information.

 

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In the case of a firm which rents the premises from which it operates, a credit balance brought down on its rent payable account at a particular date means that, at that date, …

Select ONE answer:

1. the firm owes rent.
2. the firm has paid rent in advance.
3. the firm has paid too much rent.
4. the firm has paid too little rent.

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 1

1. Correct – A trial balance is a list of the balances brought down in the underlying ledger accounts. In a trial balance. credit balances represent income or liabilities whereas debit balances represent assets or expenses. In the case of rent payable, a credit balance represents a liability as rent payable cannot be income.
2. Not correct
3. Not correct
4. Not correct

 

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