Other Adjustments for Final Accounts

In the balance sheet of a sole trader, accruals should be shown as part of . . .

• fixed assets.

• drawings.

• current assets.

• current liabilities.

In the balance sheet of a sole trader, prepayments should be shown as . . .

• a deduction from capital.

• part of creditors.

• a deduction from current liabilities.

• part of current assets.

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, . . .

• the firm owes rent.

• the firm has paid rent in advance.

• the firm has paid too much rent.

• the firm has paid too little rent.

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

• 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.

• 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.

• be shown as part of long-term liabilities in the balance sheet at the end of the period.

• be netted off against prepayments at the same date and shown together, as a single figure, in the balance sheet at the end of the period.

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

• to decrease the figures shown in the balance sheet for both creditors and prepayments.

• to decrease both the rates expense shown in the profit and loss account and the figure shown in the balance sheet for prepayments.

• to increase the figures shown in the balance sheet for both prepayments and creditors.

• to increase the figure shown in the balance sheet for prepayments and to decrease the rates expense shown in the profit and loss account.

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 . . .

• as a prepayment in the balance sheet and as an expense in the profit and loss account.

• as a deduction from the figure for bank in the balance sheet and as revenue in the profit and loss account.

• as a prepayment in the balance sheet and as a deduction from the total of advertising expenditure paid in the profit and loss account.

• as an accrual in the balance sheet and as revenue in the profit and loss account.

Which of the following statements is correct ?

• 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.

If a £500 salaries accrual was inadvertently treated as a prepayment, net profit would be . . .

• overstated by £500.

• understated by £500.

• overstated by £ 1,000.

• understated by £ 1,000.

On l January 2000, a new firm, whose financial year-end is 31 December, rented premises at a cost of £10,000 per annum, payable quarterly in arrears. Four payments, each of £2,500, were made on 31 March 2000, 2 July 2000, 4 October 2000 and 6 January 2001.

The rent figure in the preliminary trial balance as at 31 December 2000 should be:

• £7,500

• £10,000

• £12,500

• £30,000

During 20X0 an employee borrowed £10,000 from the firm where he worked at a simple interest rate of I0% per annum, fixed for the three years over which the loan was to be repaid in equal monthly instalments. On 1 IJanuary 20X1, the employee had paid £1OO interest in advance. On 31 December 20X1, the employee was in arrears with his interest payments to the extent of £300. The figure for interest receivable on this loan in the firm's profit and loss account for 20X1 is:

• £850

• £1,000

• £1,150

• £1,250