Accountancy MCQs
Topic Notes: Accountancy
General Description
Plato
- Biography: Ancient Greek philosopher (427–347 BCE), student of Socrates and teacher of Aristotle, founder of the Academy in Athens.
- Important Ideas:
- Theory of Forms
- Philosopher-King
- Ideal State
1
Where is an outstanding rent expense for the current month recorded?
Answer:
Nowhere in the cash book
The cash book only records actual cash receipts and cash payments. An outstanding expense, such as rent due but not yet paid, represents a liability and an accrual adjustment. Since no cash has moved, it does not appear in the cash book. Instead, it is recorded in the journal as an adjusting entry to reflect the expense in the financial statements.
2
How should an unpaid bill for repair services be classified in the accounts?
Answer:
An outstanding expense
An outstanding expense (or accrued expense) is an obligation for services already received but not yet paid for by the end of the accounting period. It must be recognized as a liability to ensure the matching principle is followed.
3
Which of the following journal entries correctly records the adjustment for accrued expenses?
Answer:
Debit = Expenses, Credit = Accrued expenses
Accrued expenses represent costs incurred during the period that have not yet been paid or recorded. To ensure the matching principle is followed, the expense account is debited to reflect the cost incurred, and a corresponding liability account (accrued expenses) is credited to reflect the obligation to pay in the future.
4
How are expenses that have been incurred but not yet paid or recorded in the books formally classified?
Answer:
Accrued expenses
Accrued expenses represent obligations that have been incurred during an accounting period but for which no payment has been made and no invoice has been recorded. These are recognized through adjusting entries to ensure the matching principle is followed in financial reporting.
5
Which journal entry correctly records the accrual of an expense at the end of an accounting period?
Answer:
DEBIT= Expenses, CREDIT= Accrued expenses
Accrued expenses represent obligations for services or goods received but not yet paid. To record this, the expense account is debited to recognize the cost in the current period, and a liability account (Accrued Expenses) is credited.
6
How are prepaid expenses and accrued income collectively classified in accounting?
Answer:
Outstanding assets
Prepaid expenses and accrued income are often referred to as outstanding items in the context of final accounts adjustments. While the term 'outstanding assets' is not standard GAAP terminology, it is used in some academic contexts to describe these accruals and deferrals.
7
How should an unpaid invoice for an expense be classified in the Balance Sheet?
Answer:
current liability
An unpaid invoice for an expense represents an obligation to pay a supplier in the near future, typically within one year. According to accounting standards, such obligations are classified as current liabilities because they represent a short-term debt that the business must settle using its current assets.
8
Based on standard accounting practices, which of the following statements regarding rent accounting is false?
Answer:
The balance as at Dec 31 0x4 would appear on the balance sheet as a current liability
The statement is identified as false because the classification of an outstanding rent balance depends on the specific accrual status at year-end. If the rent is prepaid, it is an asset; if it is accrued, it is a liability. Without specific context, labeling it definitively as a liability is often incorrect.
9
If a business pays rent quarterly at $1,200, with an opening accrual of $800 on January 1, 2018, and payments of $2,000, $1,200, and $1,200 made during the year, what amount should be debited to the Income Statement for the year ended December 31, 2018?
Answer:
$4 800
The Income Statement must reflect the rent expense incurred during the current accounting period, regardless of cash payments. Since the rent is $1,200 per quarter, the annual expense is $1,200 multiplied by 4 quarters, totaling $4,800. Accruals and prepayments adjust the cash paid to arrive at this accrual-based expense figure.
10
How should unpaid salaries be classified in the final accounts?
Answer:
Outstanding expenses
Outstanding expenses refer to costs that have been incurred by the business during the accounting period but have not yet been paid. Since salaries represent a service received by the business for which payment is still due, they are classified as outstanding expenses and appear as a liability on the balance sheet.