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The MCQs below are drawn from the Accountancy & Auditing subject category.
Showing 4461–4470
of 4621 MCQs
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4461
In the preparation of a balance sheet, where is pre-received (unearned) income reported?
Pre-received income represents an obligation for the business to provide goods or services in the future. Because it is an obligation arising from past transactions, it is classified as a current liability and is therefore reported on the liability side of the balance sheet.
4462
A client paid $100,000 for construction services, but only 25% of the work was completed by the end of the period. What amount should be recognized as revenue?
According to the accrual basis of accounting and the revenue recognition principle, income should be recognized only when it is earned. Since only 25% of the work was completed, only 25% of the total payment ($100,000 * 0.25 = $25,000) is considered earned revenue for the current period.
4463
Which adjusting entry is appropriate for recognizing earned income that was previously recorded as unearned?
When income is earned, the liability account (Unearned Income) must be reduced, and the revenue account (Income) must be increased. Therefore, the correct adjusting entry involves debiting the Unearned Income account to decrease the liability and crediting the Income account to recognize the revenue earned during the period.
4464
A client paid $100,000 in advance for construction services. If only 25% of the project is completed by the end of the accounting period, what revenue amount should be recognized in the income statement?
According to the revenue recognition principle, revenue is recognized only when it is earned. Since only 25% of the construction work has been performed, the business has earned 25% of the total contract price. Therefore, 25% of $100,000, which equals $25,000, is recognized as revenue, while the remaining $75,000 is recorded as unearned revenue (a liability).
4465
Which of the following is an accepted alternative term for 'provision for doubtful debts'?
The term 'Allowance for Doubtful Debts' is the standard terminology used in modern accounting standards (such as IFRS) to describe the contra-asset account that reduces the gross accounts receivable to its estimated net realizable value.
4466
Given a provision for doubtful debts of £550 at the start of the year and £850 at the end, with outstanding debtors of £8,800, what is the net value of debtors?
The net value of debtors is calculated by subtracting the closing provision for doubtful debts from the total gross debtors balance. Here, £8,800 minus the closing provision of £850 equals £7,950. The opening provision is used to calculate the expense for the year but does not affect the year-end net balance calculation.
4467
Given total debtors of $5,000 and a provision for doubtful debts of $500, what is the net value of debtors to be reported on the balance sheet?
To present a realistic view of the assets, the provision for doubtful debts is deducted from the gross trade debtors. This results in the net realizable value of the debtors, which is $4,500 in this scenario.
4468
A business has a $30 existing provision for doubtful debts and $360 in trade receivables. If the provision must be adjusted to 5% of receivables, what is the impact on the income statement?
The required provision is 5% of $360, which equals $18. Since the existing provision is $30, the provision must be reduced by $12 ($30 - $18). A reduction in a provision is treated as a gain, resulting in a $12 credit to the income statement.
4469
How is the 'Provision for Doubtful Debts' account classified in accounting?
A provision for doubtful debts is a contra asset account because it is used to reduce the gross value of accounts receivable on the balance sheet. By subtracting this provision from the total receivables, the company reports the net realizable value, which is the amount of cash it realistically expects to collect from customers. It represents an estimate of uncollectible debts.
4470
Which financial metric is typically used as the basis for calculating the provision for doubtful debts?
The provision for doubtful debts is an estimate of the portion of credit sales that may not be collected. Therefore, it is logically calculated based on the total credit sales or the outstanding balance of trade debtors resulting from those sales.
