Q4 what are prepaid expenses ans they are those

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Q.4. What are prepaid expenses ? Ans. They are those expenses which have been paid in advance. In the Balance Sheet, they are shown as an asset. Q.5. What is Accrued Income ? Ans. It is an income which has been earned during the accounting period but has not yet become due for payment and, therefore, has not been received. In the Balance Sheet, it is shown as an asset. Q.6. What is Income Received in Advance ? Ans. It is an income which has been received before it has been earned, i.e., goods have been sold or services have been rendered. In the Balance Sheet, it is shown as a liability. Q.7. What are the Advantages and Disadvantages of Cash Basis of Accounting ? Ans. Advantages : Advantages of Cash Basis of Accounting are: (i) It is a simple basis of accounting as adjustments for outstanding expenses, prepaid expenses, accrued income and income received in advance is not made. (ii) This approach is more objective as very few estimates and judgements are required.
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26 Address: Plot No 420, Behind Shopprix Mall, Vaishali Sector 5, Ghaziabad 201010 M: 9999907099, 9818932244 O: 0120-4130999 Website: , (iii) This basis of accounting is suitable for those enterprises where most of the transactions are on cash basis. Disadvantages : Disadvantages of Cash Basis of Accounting are : (i) It does not give a true and fair view of the profit or loss and the financial position of an enterprise because it ignores outstanding and prepaid expenses and accrued income and income received in advance. (ii) It does not follow the matching principle of accounting. (iii) This system does not distinguish between capital and revenue items and, as a result, there is no consistency in the profits of the two years. Q.8. What is Accrual Basis of Accounting ? Ans. Accrual Basis of Accounting: Under Accrual Basis of Accounting, unlike under Cash Basis of Accounting, income is recorded as income when it is earned or accrued. For example, credit sale is recognised as sale irrespective of the fact whether amount has been recived or not. Similarly, if an expense has been incurred but payment has not been made, it will be recorded as an expense. Q.9. What are the advantages and disadvantages of Accrual Basis of Income ? Ans. Advantages : The advantages of Accrual Basis of Accounting are : (i) It is more scientific compared to Cash Basis of Accounting and hence is preferred by accountants. (ii) This basis of accounting shows a complete picture of financial transactions of the business as it takes into account the effect of all transactions relating to a period as well as adjustments like outstanding expenses, prepaid expenses, accrued income and income received in advance. (iii) This basis discloses correct profit or loss for a particular period and also exhibits true financial position of the business on a particular day.
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