, , , , , , , , , , , , Points to remember • Adjustment entries are the journal entries made at the end of the accounting period to bring into account items which are omitted in trial balance but which relate to the relevant accounting period. • Adjustment entries are made so that the financial statements represent a true and fair view of profitability and financial position. • Closing stock is valued at cost price or net realisable value whichever is lower. • Outstanding expense and income received in advance are current liabilities.
• Prepaid expense and accrued income are current assets. • Provision is created for bad and doubtful debts and discount on debtors in the current accounting period against debtors of current accounting period. Accountancy Self-examination questions I Multiple choice questions Choose the correct answer . A prepayment of insurance premium will appear in (a) The trading account on the debit side (b) The profit and loss account on the credit side (c) The balance sheet on the assets side (d) The balance sheet on the liabilities side .
Net profit is (a) Debited to capital account (b) Credited to capital account (c) Debited to drawings account (d) Credited to drawings account . Closing stock is valued at (a) Cost price (b) Market price (c) Cost price or market price whichever is higher (d) Cost price or net realisable value whichever is lower . Accrued interest on investment will be shown (a) On the credit side of profit and loss account (b) On the assets side of balance sheet (c) Both (a) and (b) (d) None of these . If there is no existing provision for doubtful debts, provision created for doubtful debts is (a) Debited to bad debts account (b) Debited to sundry debtors account (c) Credited to bad debts account (d) Debited to profit and loss account Answer (c) (b) (d) (c) (d) II Very short answer questions .
What are adjusting entries? . What is outstanding expense? .
What is prepaid expense? .