Financial Statements – 2

What is the central idea of the chapter "Financial Statements – II"?

1. Financial statements do not require adjustments.
2. Adjustments such as outstanding expenses, prepaid expenses, depreciation, accrued income, bad debts, and provisions are necessary to prepare accurate financial statements showing true profit and financial position.
3. Only cash transactions affect final accounts.
4. Balance Sheet does not include adjustments.

Which accounting concept requires expenses to be recorded in the same period as related revenue?

1. Matching Concept
2. Money Measurement Concept
3. Dual Aspect Concept
4. Cost Concept

Which item is shown on the liabilities side of the Balance Sheet?

1. Furniture
2. Debtors
3. Creditors
4. Stock

The purpose of making adjustments in final accounts is to:

1. Increase profits artificially
2. Ensure correct calculation of profit and financial position
3. Avoid recording transactions
4. Reduce assets

Interest on drawings is considered as:

1. Expense
2. Income for the business
3. Asset
4. Liability

Interest on capital is treated as:

1. Expense for the business
2. Income for the business
3. Liability only
4. Asset only

Which account is affected by outstanding salary adjustment?

1. Salary Account and Balance Sheet
2. Sales Account only
3. Capital Account only
4. Cash Account only

Accrued income is shown as:

1. Liability
2. Asset
3. Expense
4. Capital

Closing stock appears on the:

1. Debit side of Trading Account
2. Credit side of Trading Account and asset side of Balance Sheet
3. Liability side of Balance Sheet
4. Debit side of Profit and Loss Account

Provision for doubtful debts is created on:

1. Creditors
2. Debtors
3. Capital
4. Purchases

Bad debts are recorded when:

1. Debtors pay their dues
2. Amount due from customers becomes irrecoverable
3. Cash sales increase
4. Expenses decrease

Depreciation is charged on fixed assets to:

1. Increase asset value
2. Reduce liability
3. Allocate the cost of assets over their useful life
4. Increase capital

Prepaid expenses are treated as:

1. Liability
2. Asset
3. Income
4. Capital

Outstanding expenses are shown as:

1. Asset
2. Liability
3. Income
4. Capital

What are adjustment entries in financial statements?

1. Entries made for cash transactions only
2. Entries made to record items that are omitted or require correction before preparing final accounts
3. Entries made only for purchases
4. Entries made after closing the business