chapter 11 - other payables & other receivables

Question 1

definition of:
accrued expense

apply what principle?

Answer 1

an expense relating to a particular accounting period which is unpaid at the end of that period

• matching principle; any amount due but unpaid at the end of financial year will be added to the amount paid
• balance b/d on cr side
• current liability

Question 2

explain why accrued expenses should be included when calculating profit

Answer 2

so that profit or loss will be shown at a more accurate figure
allows meaningful comparisons of financial statements from year to year

Question 3

definition of:
prepaid expense

what principle?

Answer 3

an expense paid during financial year which relates to a future accounting period

• matching principle; any amount paid during financial year relating to a future account must be deducted from amount paid
• balance b/d on dr side
• current asset

Question 4

definition of:
accrued income

what principle?

Answer 4

income relating to a particular accounting period which has not been received at the end of that period

• matching principle; any amount due but has not received yet at the end of financial year must be added to amount received
• balance b/d on dr side
• current asset

Question 5

definition of:
prepaid income

what principle?

Answer 5

income received during financial year which relates to future accounting period

• matching principle; amount received during financial year relating to future accounting period should be deducted from amount received
• balance b/d on cr side
• current liability

Question 6

explain why income received in advance is shown as a current liability

Answer 6

business has a liability to provide some service or benefit for which business has already been paid

Question 7

explain why accrued income is shown as current asset

Answer 7

balance represents an amount owing to the business, due to be received in the near future