Adjustments

Question 1

Explain a pre-adjustment trail balance

Answer 1

• it’s prepared during the financial year
• the entries doesn’t include any adjustments
• it shows both the balance sheet and nominal account sections

Question 2

Explain a post-adjustment trail balance

Answer 2

• it’s prepared at the end of the financial year
• the entries include adjustments
• it shows both the balance sheet and nominal account sections

Question 3

Explain a post-closing trail balance

Answer 3

• prepared at the end of the financial year
• entries include adjustments
• it shows only the balance sheet account section, all the income and expenses are closed off to the final accounts

Question 4

Describe the term financial year

Answer 4

12 consecutive months when the financial performance of the business is recorded

Question 5

What is the reason for doing adjustments?

Answer 5

The business needs to know that all the income and expenses for a specific period is dealt with in the books for that period

Question 6

State what the accrual/matching principle says

Answer 6

Income is the difference between the revenue and expenses incurred in the same financial period

Question 7

State what the prudence principle says

Answer 7

Profit shouldn’t be overstated and non-current assets shouldn’t be overvalued

Question 8

Explain the term income received in advance

Answer 8

The income that should be received in the next financial but has already been received in the current financial period

Question 9

Explain the term prepaid expenses

Answer 9

a payment made in the current financial period for an expense that will only be incurred in the next financial period

Question 10

Explain the term accrued

Answer 10

an income that must still be received or an expense that must still be paid