Recording, using and evaluating financial information

When preparing financial statements the bad debt account is closed by a transfer to:

• The profit and loss account

• The allowance for bad debts account

• The trading account

• The balance sheet

Which of the following statements is correct:

• The Bad Debts account has a credit balance

• Bad Debts are added to debtors

• Bad Debts are deducted from the outstanding Accounts receivable (debtors)

• Bad debts are added to current assets

The general journal entry required to write off a bad debt is posted by:

• Debiting accounts receivable (debtors)

• Crediting bad debts

• Debiting bad debts

• None of the above

The rationale for making a provision in respect of doubtful debts is that the provision:

• Records the expense of bad debts as they incurred

• Matches the estimated cost of future bad debts against the income earned in giving rise to potential bad debts

• Is an estimate of future bad debts

• records bad debts without taking them out of the books of a business, therefore showing the full amount owed by debtors as a current asset

If $300 accrued wages was accidentally treated as a prepayment, the profit would be:

• overstated by $300

• understated by $300

• overstated by $600

• Understated by $600

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

• be shown as part of the non-current liabilities in the balance sheet at the end of the financial period

• be shown as an expense in the income statement for the period and shown as a non-current liability in the balance sheet at the end of the period

• be shown as an expense in the income statement for the period and shown as a non-current asset in the balance sheet at the end of the period

• be shown as an expense in the income statement for the period and shown as a current liability in the balance sheet at the end of the period

An error adding Unearned Income of $100 instead of deducting it from the income received is corrected by:

• Adding $100

• Deducting $100

• Adding $200

• Deduction $200

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

• Part of current assets

• Part of creditors

• A deduction from capital

• None of the above

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

• Current liabilities

• Current assets

• Fixed assets

• Equity

Which one of the following is recorded in the balance sheet as a current asset:

• Expense due

• Prepayment

• Expense incurred

• Expense paid