Financial Statements 2 Test 3

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Financial Statements 2 Test 3

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Question 1
1 / -0

The closing stock of the year becomes the ______ of the next year.

A
Liabilities

B
Asset

C
Opening stock

D
Dead stock

Solution

The closing stock represents the cost of unsold goods lying in the stores at the end of the accounting period. The adjustment for the closing stock is done by crediting it to the trading profit and loss account and by showing it on the asset side of the balance sheet. The closing stock of the current year becomes the opening stock of the next year and is reflected in the trial balance.
Question 2
1 / -0

Amount which has accrued but is still to be received.

A
Outstanding Income

B
Outstanding Expense

C
Prepaid Income

D
Prepaid Expense

Solution

It may happen that certain items of income such as interest on loan, commission, rent, etc. are earned during the current accounting year but have not been actually received by the end of the same year. Such incomes are known as accrued income. It is also known as Outstanding income. The adjusting entry for accrued income is:
Accrued Income A/c Dr.
To Concerned Income A/c
The amount of accrued income will be added to the related income in the profit and loss account and the new account of accrued income will appear on the asset side of the balance sheet.
Question 3
1 / -0

Amount of Rs. 1,000 is paid on July 01, 2017 towards insurance premium. Therefore, amount belonging to the year ending March 31, 2018, will be ____.

A
Rs. 400

B
Rs. 1,000

C
Rs. 250

D
Rs. 300

Solution

For the preparation of financial statements, it is necessary that all the adjustments arising out of the accrual basis of accounting are made at the end of the accounting period. Another important consideration in preparation of final accounts with adjustment, is the distinction between capital and revenue items. Entries which are recorded to give effect to these adjustments are known as adjusting entries. Final accounts represents true and fair view of the state of affairs of the business.
An amount of Rs. 1,000 is paid on July 01, 2017 towards premium. Any general insurance premium paid usually covers a period of 12 months.
Suppose the accounting period ends on March 31, 2018, one-fourth of the insurance premium is paid on July 01, 2017 which is Rs. 250.
Question 4
1 / -0

All adjustments are reflected in the final accounts at ______ place to complete the double entry.

A
three

B
two

C
one

D
five

Solution

Adjustments become necessary in respect of certain incomes received in advance and those which have accrued but are still to be received. Apart from these, 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 and loss and the true financial position of the business.
It may be noted that when we prepare the financial statements, we are provided with the trial balance and some other additional information in respect of the adjustments to be made. Like all other entries, even the adjustments are to be made with a dual effect and hence, they are reflected in final accounts at 2 places.
Question 5
1 / -0

The prepaid expense is shown on the _______ side of the balance sheet.

A
Assets

B
Liabilities

C
Debit

D
Credit

Solution

There are several items of expense which are paid in advance in the normal course of business operations. At the end of the accounting year, it is found that the benefits of such expense have not yet been fully received; a portion of its benefit would be received in the next accounting year. This portion of expense, is carried forward to the next year and is termed as prepaid expenses. The necessary adjustment in respect of prepaid expenses is made by recording he following journal entry:
Prepaid Expense A/c Dr.
To Concerned Expense A/c
Th effect of the above adjustment entry is that the amount of prepaid part is deducted from the total of the particular expense, and the prepaid expense is shown on the assets side of the balance sheet.
Question 6
1 / -0

Give effect of the following adjustment entry:
The accrued rent is Rs. 1,900.

A
Rent A/c Dr. 1,900

To Accrued Rent A/c 1,900

B
Accrued Rent A/c Dr. 1,900

To Rent A/c 1,900

C
Accrued Rent A/c Dr. 1,900

To Asset A/c 1,900

D
None of the above

Solution

It may happen that certain items of income such as interest on loan, commission, rent, etc. are earned during the accounting year but have not been actually received by the end of the year. Such incomes are known as accrued income. The adjustment entry for accrued income is:
Accrued Income A/c Dr.
To Concerned Income A/c
The amount of accrued income will be added to the related income in the profit and loss account and the new account of accrued income will appear on the asset side of the balance sheet.
The effect of adjustment entry for accrued rent of Rs. 1,900 is:
Accrued Rent A/c Dr. 1,900
To Rent A/c 1,900
Question 7
1 / -0

Accrued income is also called ________.

A
Outstanding income

B
Outstanding expense

C
Prepaid income

D
Prepaid expense

Solution

It may happen that certain items of income, such as interest on loan, commission, rent, etc., are earned during the current accounting year but have not been received by the end of the same year. Such incomes are known as accrued income. It is the income that has been earned during a particular accounting period, also known as outstanding income.
Examples include accrued interest, accrued rent (to be received), etc. Accrued income is recorded in the books at the end of an accounting period to show the true numbers of a business.
Question 8
1 / -0

Amount earned during the current accounting year but have not been actually received by the end of the same year is known as ___________.

A
Prepaid expense

B
Prepaid income

C
Outstanding expense

D
Outstanding Income

Solution

It may happen that certain items of income such as interest on loan, commission, rent, etc. are earned during the current accounting year but have not been actually received by the end of the same year. Such incomes are known as accrued income, outstanding income or incomes earned but not yet received. Common examples of such incomes are commission receivable, income on investments due but not yet received etc. The adjusting entry for accrued income is:
Accrued Income A/c Dr.
To Concerned Income A/c
The amount of accrued income will be added to the related income in the profit and loss account and the new account of accrued income will appear on the asset side of the balance sheet.
Question 9
1 / -0

Income received in advance will be shown as ________.

A
Current asset

B
Current liabilities

C
Fixed asset

D
Fixed liabilities

Solution

Sometimes, a certain income is received but the whole amount of it does not belong to the current period. The portion of the income which belongs to the next accounting period is termed as income received in advance or an Unearned Income. Income received in advance is adjusted by recording the following entry:
Concerned Income A/c Dr.
To Income Received in Advance A/c
The effect of this entry will be that the balance in he income account will be equal to the amount of income earned for the current accounting period, and the new account of income received in advance will be shown as a liability in the balance sheet.
Question 10
1 / -0

In balance sheet, accrued income is shown under which head of assets _______________.

A
Intangible Assets

B
Current Assets

C
Fictitious Assets

D
Tangible Assets

Solution

It may happen that certain items of income such as interest on loan, commission, rent, etc. are earned during the current accounting year but have not been actually received by the end of the same year. Such incomes are known as accrued incomes. The adjusting entry for accrued income is:
Accrued Income A/c Dr.
To Concerned Income A/c
The amount of accrued income will be added to the related income in the profit and loss account and the new account of accrued income will appear on the asset side under the head current assets of the balance sheet

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Financial Statements 2 Test 3

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Financial Statements 2 Test 3

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Question 1

Liabilities

Asset

Opening stock

Dead stock

Solution

Question 2

Outstanding Income

Outstanding Expense

Prepaid Income

Prepaid Expense

Solution

Question 3

Rs. 400

Rs. 1,000

Rs. 250

Rs. 300

Solution

Question 4

three

two

one

five

Solution

Question 5

Assets

Liabilities

Debit

Credit

Solution

Question 6

Rent A/c Dr. 1,900 To Accrued Rent A/c 1,900

Accrued Rent A/c Dr. 1,900 To Rent A/c 1,900

Accrued Rent A/c Dr. 1,900 To Asset A/c 1,900

None of the above

Solution

Question 7

Outstanding income

Outstanding expense

Prepaid income

Prepaid expense

Solution

Question 8

Prepaid expense

Prepaid income

Outstanding expense

Outstanding Income

Solution

Question 9

Current asset

Current liabilities

Fixed asset

Fixed liabilities

Solution

Question 10

Intangible Assets

Current Assets

Fictitious Assets

Tangible Assets

Solution

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Rent A/c Dr. 1,900

To Accrued Rent A/c 1,900

Accrued Rent A/c Dr. 1,900

To Rent A/c 1,900

Accrued Rent A/c Dr. 1,900

To Asset A/c 1,900