Question

2 How will you deal with the following items in Accounting Equation:

1. Interest on Capital

2.Interest on Drawings

3.Accrued Income

4. Unearned Income ₹

5.Prepaid Expenses

6.Outstanding Expens​

Answer 1

Explanation:

As we know that accounting is done on the basis of the Accrual concept. As per this concept, we not only record the transactions that are in cash only but also those which relate to the accounting year whether in cash or not. In order to determine the correct profit and loss and the true and fair financial position at the end of the year, we need to account for all the expenses and incomes pertaining to the current accounting year. Thus, Outstanding Expenses, Prepaid Expenses, Accrued Income and Income Received In Advance require adjustment.

Answer 2

Answer:

As we know that accounting is done on the basis of the Accrual concept. As per this concept, we not only record the transactions that are in cash only but also those which relate to the accounting year whether in cash or not. In order to determine the correct profit

Sometimes in the normal course of business, an enterprise may have some expenses relating to which the payment is due at the end of the year. We know these expenses as Outstanding Expenses.

Wages, salary, rent, interest on the loan, etc. are examples of such expenses that may remain due at the end of the accounting year.

However, we need to record them as they relate to the incomes of the current year. Like all other expenses, they are also a charge against the profit of the current year.

Explanation:

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