Account 1 Marks Question

It is a capital expenditure because business premises is a fixed asset and it will result in increase in earning capacity of the business and will also be useful for more than one year.

Outstanding expenses are provided as per the accrual concept of accounting according to which all expenses for the year, whether paid or not, should be recorded.

Adjusted Purchases are shown in the Trading Account on the debit side. Closing Stock is shown on the assets side of the Balance Sheet under the main head Current Assets.

Adjusted Purchases means Opening Stock is added to purchases while closing stock is deducted. In other words, we can say that entry for closing stock is passed in the books of account.

1. Purchase of Machinery.
2. Expenditure on installation of Machinery.

Prepaid Expenses are deducted from the relevant expense and shown in the Trading Account or Profit and Loss Account. They are also shown in the Balance Sheet on the Assets side under the main head Current Assets.

Unearned Income means income that has been received against which services are yet to be rendered or goods are yet to be sold.

Profit and Loss Account.

Prepaid Expenses are the expenses that have been paid but their benefit will not be exhausted in current accounting period but in the next year.

₹ 1,00,000 will be deducted from Purchases on the debit side of Trading A/c, ₹ 40,000 will be shown on the debit side of Profit and Loss A/c and ₹ 60,000 will be shown on the Assets side of the Balance Sheet.

Unearned Income is shown in the Balance Sheet on the Liabilities side under the main head Current Liabilities.

These are provided as per the accrual concept of accounting according to which all incomes earned during the year should be recognised, whether received or not.

Outstanding Expenses mean the expenses incurred but not yet paid.

Depreciation is the fall in value of asset due to its use, efflux of time, technological changes and obsolescence.

There are certain expenditures which are revenue in nature but the benefit of which is likely to be derived over a number of years. Such expenditures are termed as 'Deferred Revenue Expenditures'. Such as heavy expenditure on advertisement.

			Treatment in P & L a/c	Treatment in Balance Sheet
i.	Outstanding Salaries		Added in Salaries the Debit side of Profit & Loss a/c	Shown on the Liabilities side.
ii.	Accrued Interest		Added to Interest Received on the Credit side of Profit & Loss a/c	Shown on the Assets side.

A provision is created to cover any possible loss on account of bad-debts likely to occur in future. Such a provision is created at a fixed percentage on debtors every year and is called “Provision for Bad and Doubtful Debts'. The term “Provision should be used instead of “Reserve' because the aim is not to strengthen the financial position of the business but to cover an expected future loss. The amount of Provision for Doubtful Debts on the one hand, is shown on the debit side of the Profit and Loss Account and on the other hand, is deducted from Sundry Debtors on the assets side of the Balance Sheet, so that the debtors may appear at their realisable value in the Balance Sheet.

Closing Stock given outside the Trial Balance is shown on the credit side of the Trading Account and on the assets side of the Balance Sheet under the main head Current Assets.

Prepaid Expenses on the one hand, will be deducted from the concerned expenses on the debit side of Trading or Profit and Loss Account and on the other hand, will also be shown on the Assets side of the Balance Sheet.

No. Provision for discount on debtors is calculated after deducting provision for doubtful debts from debtors.

Provision for Doubtful Debts means provision made against debts of the amount that are doubtful of recovery. It is calculated as a percentage of debtors.

Bad Debt is the amount due from the debtors which has become irrecoverable.

It is based on the principle of prudence (or conservatism) according to which all anticipated losses should be taken into account, but all unrealized gains should be ignored.