Editing Content :: Admin Scraper

Chapter

Content type

Position

Value

368 Accountancy 3. Prepaid expenses : At the end of the accounting year, it is found that the benefits of some expenses have not been fully received; a portion of total benefits would be received in the next accounting year. That portion of the expense, the benefit of which will be received during the next accounting period is known as ‘prepaid expenses’. 4. Accrued Income : These are certain items is received by a business enterprise but the whole amount of it does not belong to the next period. Such portion of income which belongs to the next accounting period is income received in advance and is known as “unearned income”. 5. Depreciation : Depreciation is the decline in the value of an asset an account of wear and tear or passage of time or with. It actually amounts to writing off a portion of the cost of an asset which has been used in the business for the purpose of earning profits. In the balance sheet, the asset is shown at loss minus the amount of depreciation. 6. Provisions for bad and doubtful debts : It is a normal feature of business operations that some debts prove irrecoverable which means that the amount to the realised from them becomes had to view of this. An attempt is made to bring in a certain element of certainty in the amount in respect of bad debts charged every year against incomes. Questions for Practice Short Answers 1. Why is it necessary to record the adjusting entries in the preparation of final accounts? 2. What is meant by closing stock? Show its treatment in final accounts? 3. State the meaning of: (a) Outstanding expenses (b) Prepaid expenses (c) Income received in advance (d) Accrued income 4. Give the Performa of income statement and balance in vertical form. 5. Why is it necessary to create a provision for doubtful debts at the time of preparation of final accounts? 6. What adjusting entries would you record for the following : (a) Depreciation (b) Discount on debtors (c) Interest on capital (d) Manager’s commission 7. What is meant by provision for discount on debtors? 8. Give the journal entries for the following adjustments : (a) Outstanding salary ` 3,500. (b) Rent unpaid for one month at ` 6,000 per annum. (c) Insurance prepaid for a quarter at ` 16,000 per annum. (d) Purchase of furniture costing ` 7,000 entered in the purchases book. Reprint 2026-27