Test Your Knowledge - Adjustments in Accounting

What is a prepayment in accounting?

An expense paid in advance but not yet incurred
An expense that is yet to be paid
An amount owed to the company

What is accrual accounting?

Recording income and expenses when cash is received or paid
Recording income and expenses when they are incurred, regardless of cash flow
Only recording income when payment is received

Which of the following would be classified as an accrual?

Revenue earned but not yet received in cash
Rent paid for the current year
A prepayment made for a future service

Which of the following is an example of a prepayment?

Interest payable
A subscription paid in advance for one year
Revenue from customers who have paid in advance

What is the purpose of depreciation in accounting?

To allocate the cost of an asset over its useful life
To record the full cost of an asset in one year
To increase the value of the asset

Which of the following would require a depreciation adjustment?

Cash in the bank
A machine purchased for use in production
A loan payable

How is prepayment accounted for at the end of the financial year?

It is recorded as an expense
It is recorded as an asset until consumed
It is written off immediately

Which method is commonly used to calculate depreciation?

Straight-line method
Accrual method
FIFO method

What is the impact of accruals on the financial statements?

They increase liabilities and decrease equity
They increase assets and increase equity
They decrease both liabilities and assets

When should depreciation be recognized on a non-current asset?

When the asset is sold
From the moment the asset is used in the business
At the end of the asset's useful life

Test Your Knowledge - You have 10 questions!