Understanding Balance Day Adjustments

What is the primary purpose of balance day adjustments in accounting?

• To increase the profit of a business

• To ensure that all income and expenses are recorded in the correct accounting period

• To reduce the amount of tax payable

• To improve the appearance of financial statements

Which of the following is an example of a balance day adjustment?

• Recording a cash sale

• Depreciating a fixed asset

• Paying off a loan

• Issuing new shares

How does an accrued expense affect the financial statements?

• It increases assets and decreases liabilities

• It decreases assets and increases liabilities

• It increases liabilities and decreases equity

• It increases expenses and increases liabilities

Which of the following is a characteristic of a prepaid expense?

• It is an expense that has been incurred but not yet paid

• It is an expense that has been paid but not yet incurred

• It is an income that has been earned but not yet received

• It is an income that has been received but not yet earned

What is the effect of recognising depreciation on the financial statements?

• Increases assets and decreases expenses

• Decreases assets and increases expenses

• Increases liabilities and decreases equity

• Decreases liabilities and increases equity

Which of the following is an example of an accrued revenue?

• Rent received in advance

• Interest earned but not yet received

• Salaries paid in advance

• Inventory purchased on credit

Which journal entry correctly records an accrued expense at the end of the accounting period?

• Debit Expense, Credit Cash

• Debit Expense, Credit Accrued Liabilities

• Debit Accrued Liabilities, Credit Expense

• Debit Cash, Credit Expense

Which journal entry correctly records a prepaid expense adjustment at the end of the accounting period?

• Debit Prepaid Expense, Credit Expense

• Debit Expense, Credit Prepaid Expense

• Debit Cash, Credit Prepaid Expense

• Debit Prepaid Expense, Credit Cash