Income (Part 5)

State the effect on profit of the year if income receivable was adjusted at the end of the financial year.

• Overstated

• Understated

• Increase

• Decrease

Answer explanation

If income receivable was adjusted,

Income will increase because the income has been earned.

Therefore, profit will increase.

State the effect on profit of the year if income received in advance was adjusted at the end of the financial year.

• Overstated

• Understated

• Increase

• Decrease

Answer explanation

If income received in adv was adjusted,

Income will decrease because the income has NOT been earned.

Therefore, profit will decrease.

State the effect on profit for the year if income receivable is NOT adjusted at the end of the year.

• Overstated

• Understated

• Increase

• Decrease

Answer explanation

If income receivable was not adjusted,

income will be understated because you didn't increase it.

Hence, profit will be understated as well.

State the effect on profit for the year if income received in advance was NOT adjusted at the end of the year.

• Overstated

• Understated

• Increase

• Decrease

Answer explanation

If income received in advance was not adjusted,

income will be bigger than what it shold because you didn't reduce the income.

Hence, profit will be overstated.

State the effect on current assets if income receivable is NOT adjusted at the end of the year.

• Overstated

• Understated

• Increase

• Decrease

Answer explanation

If income receivable was not adjusted,

current assets will be understated since income receivable is a current asset and it is not being recorded.

State the effect on current liabilities if income received in advance is NOT adjusted at the end of the year.

• Overstated

• Understated

• Increase

• Decrease

Answer explanation

If income received in advance was not adjusted,

current liabilities will be understated since income received in advance is a current liability and it is not being recorded.