Accruals and Prepayments Quiz

What is an accrual?

• A payment made in advance

• An expense or income that has been incurred but not yet paid or received

• A deferred income

• A non-cash expense

A prepayment is recorded when:

• An expense has been incurred but not yet paid

• Income has been earned but not yet received

• Payment is made in advance of the related expense

• Goods are sold on credit

Which of the following best describes the matching principle?

• Assets must equal liabilities

• Revenues should be matched with expenses in the period they relate to

• Profits should be matched to cash flows

• Prepayments must be matched with accruals

What is the journal entry for an accrued expense?

• Dr Expense, Cr Bank

• Dr Expense, Cr Accruals

• Dr Accruals, Cr Expense

• Dr Bank, Cr Expense

Prepaid expenses are shown in the:

• Profit and loss account

• Statement of changes in equity

• Current assets in the statement of financial position

• Current liabilities in the statement of financial position

Accrued income is:

• A liability

• An asset

• An expense

• A capital reserve

An example of an accrued expense is:

• Depreciation

• Rent paid in advance

• Electricity bill not yet paid

• Purchase of inventory

Which of the following statements about prepayments is true?

• They reduce expenses in the income statement

• They are liabilities

• They are recorded at the end of the year only

• They increase total expenses

An expense of £1,200 was paid in advance for the year. At year-end, only 3 months had passed. The prepayment is:

• £900

• £300

• £1,200

• £0

Accruals are reversed in:

• The same accounting period

• The following accounting period

• Never

• Only when expenses are paid