IGCSE Accounting Paper-1: Specimen Questions with Answers 238 - 239 of 338

Question 238

MCQ▾

Which of the following is shown as a current liability in the balance sheet?

Choice (4)
a.	A credit balance on the Securities Premium A/c
b.	A debit balance on the P&L A/c
c.	A credit balance on a suppliers A/c
d.	A debit balance on a customer՚s A/c

A credit balance on a suppliers A/c would mean that the firm owes that amount to that supplier. It would be shown as Trade creditors under the current liability section of the balance sheet.
A debit balance on a customer՚s A/c would mean that the firm owns that amount to that customer. It would be shown as Trade debtors under the current assets section of the balance sheet.
A debit balance on the P&L A/c would mean loss and losses are deducted from capital.
A credit balance on the Securities Premium A/c will be shown as capital reserve under ‘Reserves & Surplus’ .

True-False▾

Cash method provide a better indicator of a business profits or losses
A customer՚s promise to pay is called account payable to the seller
Cash withdrawn by the proprietor from the business should be treated as an expense.
As prepaid expenses are used, the expired costs of assets become expenses

Choice (4)
a.	Only statement Ⅳ is true.
b.	Both statement Ⅰ & statement Ⅱ are true.
c.	Statement Ⅰ, Ⅱ & Ⅲ are all true.
d.	Statement Ⅰ, Ⅲ & Ⅳ are all true.

Cash Method of accounting records revenue when it is actually received in cash and expenses when they are paid. It does not provide a better indicator of a business profits or losses. A business which run mostly on credit sales if uses cash method of accounting, will understate the sales figure and hence the profits.
A customer՚s mere promise to pay does not become account payable to the seller. The promise to pay must be in WRITTEN form to constitute account payable.
Cash withdrawn by the proprietor from the business should be treated as an expense only when it is used for business purpose. When the withdrawn cash is used for personal purpose, it should be treated as drawings.
Prepaid Expenses are assets not expenses. The part of expenses paid in advance that accrues in the subsequent periods become expenses on their accrual.