FAPS Lesson 4 - Starter

From the options below, which one best describes the accruals concept in accounting?

• Income and expenditure should be matched to the period they relate to and not when the cash/payment is received

• Income and expenditure should only be shown in the financial statements when the cash/payment is received

• Sales revenue and purchases for the financial year should be shown in both financial statements

• Income and expenditure should never be shown in the financial statements -regardless of whether the accruals concept is used

Match the following terms to the example provided

• Accrued expense

• Commission received is due for the sale of an item but has not been received yet

• Accrued income

• Rent for a future period (outside of the financial year) has been paid in advance

• Prepaid expense

• A service business has received payment for a maintenance contract (outside of the financial year) that has yet to be completed

• Prepaid income

• A bill for electricity has been received at the end of a financial year - this has not been paid yet

A business has a financial year end of 31 March 20X3. An electricity bill has been received for the quarter ending May 20X3. The total amount is £300.

When adjusting for the end of year accounts for 31 March 20X3. This will require an adjustment for ​ (a)   as this is a type of ​ (b)  

• £100
• accrued expense
• £200
• £300
• £0
• prepaid expense
• accrued income
• prepaid income

True of false:

The prepaid expenses account would be categorised as an asset in the statement of financial position

• True

• False

True of false:

The accrued income account would be categorised as a liability in the statement of financial position

• True

• False

True of false:

The prepaid income account would be categorised as an asset in the statement of financial position

• True

• False