A-AS Level (CIE) Accounting Paper-2: Specimen Questions with Answers 12 - 13 of 53

Question 12

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What is bank reconciliation statement?

Explanation

Bank reconciliation statement is prepared to identify the reasons for difference and reconcile the balances of the two books. All entries recorded on the debit side of the cash book must tally with the entries recorded on the credit side of the passbook and vice versa.

It is essential to prepare a bank reconciliation statement is due to the following reasons:

  • A bank reconciliation statement locates the errors or omissions that may have been committed either on the part of the customer or the bank.
  • The customer becomes sure of the correctness of the bank balance shown by cash book.
  • A reconciliation statement helps is revealing the unnecessary delay in the collection of cheques.

Question 13

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What is deferred revenue expenditure?

Explanation

There are certain expenditures which are revenue in nature but the benefit of which is likely to be derived over a few years. Such expenditure is termed as ‘Deferred Revenue Expenditures.’ The benefit of such an expenditure generally last between 3 to 7 years. As such the whole of such expenditure is not debited to the profit and loss account of the current year but spread over the years for which the benefit is likely to last. Thus, only a part of such expenditure is taken to profit and loss account every year and the unwritten off portion can stand on the assets of the balance sheet. For example, a firm spent a huge amount of $ 200,000 on advertising to introduce new product in the market and it is estimated that its benefit will last for 4 years. In this case, $ 50,000 will be charged to P&L A/c of each year for four consecutive years.

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