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Question
What is prepaid expense?
Solution
Prepaid expenses refer to any expense or portion of expense paid in the current accounting year but the benefit of services of which will be received in the next accounting period. They are also called unexpired expenses.
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RELATED QUESTIONS
What are adjusting entries?
What is outstanding expense?
Give the adjusting entries for interest on capital and interest on drawings.
The following are the extracts from the trial balance.
Sundry debtors ₹ 30,000; Bad debts ₹ 5,000
Additional information:
(a) Write off further bad debts ₹ 3,000.
(b) Create 10% provision for bad and doubtful debts.
You are required to pass necessary adjusting entries and show how these items will appear in the profit and loss account and balance sheet.
The following are the extracts from the trial balance.
| Particulars | Debit ₹ | Credit ₹ |
| Sundry debtors | 50,000 | |
| Provision for doubtful debts | 5,000 | |
| Bad debts | 3,000 |
Additional information:
(a) Additional bad debts ₹ 3,000.
(b) Keep a provision for bad and doubtful debts @ 10% on sundry debtors.
You are required to pass necessary adjusting entries and show how these items will appear in the profit and loss account and balance sheet.
The following are the extracts from the trial balance.
| Particulars | Debit ₹ | Credit ₹ |
| Sundry debtors | 50,000 | |
| Discount on debtors | 2,000 | |
| Bad debts | 3,000 |
Additional information:
(a) Create a provision for doubtful debts @ 10% on sundry debtors.
(b) Create a provision for discount on debtors @ 5% on sundry debtors.
You are required to pass necessary adjusting entries and show how these items will appear in the final accounts.
Prepare profit and loss account of Manoj for the year ending on 31st March 2016
| Particulars | ₹ | Particulars | ₹ |
| Gross profit | 25,000 | Travelling expenses | 500 |
| Salaries | 5,600 | Stationery | 75 |
| Insurance | 200 | Rent | 650 |
| Discount allowed | 400 | Interest on loan | 225 |
| Discount received | 300 | Repairs | 125 |
| Commission received | 100 | Office expenses | 55 |
| Advertisement | 450 | General expenses | 875 |
| Printing charges | 375 | Postage | 175 |
Adjustments:
(a) Salary outstanding ₹ 400
(b) Rent paid in advance ₹ 50
(c) Commission receivable ₹ 100
The following trial balance was extracted from the books of Arun Traders as of 31st March 2018.
| Particulars | Debit | Credit |
| Buildings | 17,500 | |
| Plant and machinery | 12,000 | |
| Cash purchases | 30,000 | |
| Credit purchases | 8,500 | |
| Sales | 63,250 | |
| Bills receivable | 6,750 | |
| Coal and water | 1,625 | |
| Office expenses | 5,250 | |
| Rent received | 1,750 | |
| Carriage outwards | 2,875 | |
| Repairs and maintenance | 500 | |
| Wages | 9,250 | |
| Debtors and creditors | 9,000 | 8,500 |
| Cash | 2,000 | |
| Capital | 44,750 | |
| Opening stock | 13,000 | |
| 1,18,250 | 1,18,250 |
Prepare trading and profit and loss account for the year ending 31st March, 2018 and balance sheet as on that date after considering the following:
- Depreciate Plant and machinery @ 20%
- Wages outstanding amounts to ₹ 750.
- Half of the repairs and maintenance paid is for the next year.
- Closing stock was valued at ₹ 15,000.
From the following information prepare trading and profit and loss account and balance sheet of Kumar for the year ending 31st December 2017.
| Debit balance | ₹ | Credit balance | ₹ |
| Purchases | 14,500 | Sales | 20,100 |
| Coal and fuel | 600 | Bills payable | 400 |
| Carriage inwards | 750 | Rent received | 2,500 |
| Advertisement | 500 | Creditors | 2,000 |
| Carriage outwards | 400 | Capital | 5,000 |
| Bank | 1,200 | ||
| Furniture | 8,000 | ||
| Debtors | 2,250 | ||
| Bills receivable | 300 | ||
| Stock on 1st January, 2017 | 1,500 | ||
| 30,000 | 30,000 |
Adjustments:
- The closing stock on 31st December 2017 was valued at ₹ 3,900.
- Carriage inwards prepaid ₹ 250
- Rent received in advance ₹ 100
- Manager is entitled to receive commission @ 5% of net profit after providing such commission.
From the following information, prepare trading and profit and loss account and balance sheet in the books of Sangeetha for the year ending 31st March, 2018.
| Particulars | ₹ | Particulars | ₹ |
| Capital | 20,000 | Salaries | 6,600 |
| Bills receivable | 8,000 | Establishment expenses | 4,500 |
| Bills payable | 10,500 | Advertisement | 2,300 |
| Purchases | 75,000 | Furniture | 10,000 |
| Sales | 95,000 | Cash at bank | 3,200 |
| Opening stock | 12,000 | Miscellaneous receipts | 600 |
| Drawings | 4,500 |
Adjustments:
- Stock on 31st March, 2018 ₹ 14,200
- Income tax of Sangeetha paid ₹ 800
- Charge interest on drawings @ 12% p.a.
- Provide managerial remuneration @ 10% of net profit before charging such commission.
