7. Revenue, Income and expenses Flashcards
Explain with an accounting theory why do business make adjustment to income and expenses at the end of the financial year.
This is accordance to accrual basis of accountingwhich states that expenses and income must be recognized in the period the services has been used or earned, regardless of whether payment has been made or received or not so as to obtain an accurate amount of profit for the year.Hence business make adjustment to expenses incurred and income earned at the end of the financial yearsoas to obtain an accurate amount of profit for the year.
This is accordance to matching concept which state that the expenses incurred must be matched to the income earned in the same accounting period to determine the correct profit for the period.Hence business make adjustment to expenses incurred and income earned at the end of the financial yearsoas to obtain an accurate amount of profit for the year.
Name all double entries that you should have for this topic and the date of transaction
- SFY: Reversal entries
- During / EFY: paid expenses or received income
- EFY: Adjustment for income and expenses
- EFY: Closure /transfer of expenses incurred and income earned to income summary.
- What the nature of prepaid expenses?
- Explain why?
- Hence what is the DE prepaid expenses
(i) @ SFY
(ii) @ EFY
- DR.
- Because it is a current asset in sfpos
3 (i) SFY (reversal): Dr XXX Expenses
Cr Prepaid XXX expense
3 (ii) EFY: Dr Prepaid XXX expenses
Cr XXX Expenses.
- What the nature of expenses payable ?
- Explain why?
- Hence what is the DE expenses payable
(i) @ SFY
(ii) @ EFY
- CR.
- Because it is a current liability in sfpos
3 (i) SFY (reversal): Dr XXX Expenses payable
Cr XXX Expense
3 (ii) EFY: Dr XXX Expenses
Cr XXX Expenses papyable .
- What the nature of income receivable?
- Explain why?
- Hence what is the DE prepaid expenses
(i) @ SFY
(ii) @ EFY
- DR.
- Because it is a current asset in sfpos
3 (i) SFY (reversal): Dr XXX income
Cr XXX income receivable
3 (ii) EFY: Dr XXX income receivable
Cr XXX income.
- What the nature of income received in advance?
- Explain why?
- Hence what is the DE expenses payable
(i) @ SFY
(ii) @ EFY
- CR.
- Because it is a current liability in sfpos
3 (i) SFY (reversal): Dr XXX income received in advance
Cr XXX income
3 (ii) EFY: Dr XXX income
Cr XXX income received in advance
- Which DE (a to d from below) the figure is referring to when additional information in question says business received $XXX income?
a. SFY: Reversal entries
b. During / EFY: paid expenses or received income
c. EFY: Adjustment for income and expenses
d. EFY: Closure /transfer of expenses incurred and income earned to income summary.
- What is the double entry?
- b
- Dr Cash at bank
Cr XXX Income
- Which DE (a to d from below) the figure is referring to when additional information in question says business paid $XXX expense?
a. SFY: Reversal entries
b. During / EFY: paid expenses or received income
c. EFY: Adjustment for income and expenses
d. EFY: Closure /transfer of expenses incurred and income earned to income summary.
- What is the double entry?
- b
- Dr XXX expense
Cr Cash at bank
- Which DE (a to b from below) the figure is referring to when additional information in question says annual income was $XXX or income earned for the year was $XXX?
a. SFY: Reversal entries
b. During / EFY: paid expenses or received income
c. EFY: Adjustment for income and expenses
d. EFY: Closure /transfer of expenses incurred and income earned to income summary.
- What is the double entry?
- d
- Dr XXX income
Cr income summary
- Which DE (a to d from below) the figure is referring to when additional information in question says annual expense was $XXX or expenses incurred for the year was $XXX?
a. SFY: Reversal entries
b. During / EFY: paid expenses or received income
c. EFY: Adjustment for income and expenses
d. EFY: Closure /transfer of expenses incurred and income earned to income summary.
- What is the double entry?
- d
- Dr Income summary
Cr XXX expense
Which DE (a to d from below) do we refer to get get figures for sfper?
a. SFY: Reversal entries
b. During / EFY: paid expenses or received income
c. EFY: Adjustment for income and expenses
d. EFY: Closure /transfer of expenses incurred and income earned to income summary.
d. The income summary figure is recorded in to sfper in “add other income” and “less other expenses”
Which DE (a to d from below) do we refer to get get figures for sfpos?
a. SFY: Reversal entries
b. During / EFY: paid expenses or received income
c. EFY: Adjustment for income and expenses
d. EFY: Closure /transfer of expenses incurred and income earned to income summary.
c. The adjustment entries are recorded in the sfpos as either CA or CL
- prepaid XXX expenses (CA)
- XXX income receivalbe (CA)
- XXX expenses payable (CL)
- XXX income receivable in advance (CL)
What is the effect on profit and CA when prepaid expenses is not adjusted?
profit will be understated by $XXX [because expenses overstated]
current asset will be understated by $XXX
What is the effect on profit and CA when prepaid expenses is adjusted?
profit increase by $XXX
Current asset increase by $XXX
What is the effect on profit and CA when expenses payable is not adjusted?
profit will be overstated by $XXX [because expenses understated]
current liability will be understated by $XXX
