Question

Explain the adjustments related with the following items. Expenses paid in advance ii) Income earned but not received

Answer 1

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 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.

Explanation:

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