Chapter 14 Prepaid and Accrued Expenses - Test

1. VCE ACCOUNTING
UNIT 3 – RECORDING AND REPORTING FOR A TRADING BUSINESS
CHAPTER 14 – BALANCE-DAY ADJUSTMENTS
Page | 1
Chapter 14 Test – Balance-Day Adjustments
Name ___________________________________________
Circle the correct response for each question:
1. (a) (b) (c) (d)
2. (a) (b) (c) (d)
3. (a) (b) (c) (d)
4. (a) (b) (c) (d)
5. (a) (b) (c) (d)
6. (a) (b) (c) (d)
7. (a) (b) (c) (d)
8. (a) (b) (c) (d)
9. (a) (b) (c) (d)
10. (a) (b) (c) (d)
11. (a) (b) (c) (d)
12. (a) (b) (c) (d)
13. (a) (b) (c) (d)
14. (a) (b) (c) (d)
15. (a) (b) (c) (d)
16. (a) (b) (c) (d)
17. (a) (b) (c) (d)
18. (a) (b) (c) (d)
19. (a) (b) (c) (d)
20. (a) (b) (c) (d)
21. (a) (b) (c) (d)
22. (a) (b) (c) (d)
23. (a) (b) (c) (d)
24. (a) (b) (c) (d)
25. (a) (b) (c) (d)
Total /25 marks

2. VCE ACCOUNTING
UNIT 3 – RECORDING AND REPORTING FOR A TRADING BUSINESS
CHAPTER 14 – BALANCE-DAY ADJUSTMENTS
Page | 2
Chapter 14 Test – Balance-Day Adjustments
1. Cash accounting and accrual accounting calculate profit by:
Cash Accounting Accrual Accounting
a) Revenue received – expenses incurred Revenue received – expenses paid
b) Revenue earned – expenses incurred Revenue received – expenses incurred
c) Revenue earned – expenses paid Revenue earned – expenses incurred
d) Revenue received – expenses paid Revenue earned – expenses incurred
2. Accrual accounting is used to ensure which accounting principle is fulfilled?
a) Relevance
b) Reporting period
c) Historical cost
d) Conservatism
3. A firm calculates its profit annually on 31 December each year. On 1 November 2015 the firm
paid its rent for the next 12 months for $2,400 plus GST. For the year ended 31 December 2015,
the amount shown as an expense will be:
Cash Accounting Accrual Accounting
a) $2,400 $2,400
b) $400 $400
c) $2,400 $400
d) $400 $2,400
4. A prepaid expense occurs when:
a) The business pays for an expense before it is incurred
b) The business incurs an expense before it is paid
c) The business pays and incurs the expense at the same time
d) All of the above

3. VCE ACCOUNTING
UNIT 3 – RECORDING AND REPORTING FOR A TRADING BUSINESS
CHAPTER 14 – BALANCE-DAY ADJUSTMENTS
Page | 3
A firm paid $1,800 plus GST for six months of rent on 1 September 2015. The firm’s reporting period
ends on 31 December each year.
5. The balance-day adjustment to record the rent expense on 31 December is:
a)
General Journal
Date Particulars General Ledger Subsidiary Ledger
Debit $ Credit $ Debit $ Credit $
31 Dec Rent expense 900
Prepaid rent expense 900
b)
General Journal
Date Particulars General Ledger Subsidiary Ledger
Debit $ Credit $ Debit $ Credit $
31 Dec Prepaid rent expense 1200
Rent expense 1200
c)
General Journal
Date Particulars General Ledger Subsidiary Ledger
Debit $ Credit $ Debit $ Credit $
31 Dec Prepaid rent expense 900
Rent expense 900
d)
General Journal
Date Particulars General Ledger Subsidiary Ledger
Debit $ Credit $ Debit $ Credit $
31 Dec Rent expense 1200
Prepaid rent expense 1200

4. VCE ACCOUNTING
UNIT 3 – RECORDING AND REPORTING FOR A TRADING BUSINESS
CHAPTER 14 – BALANCE-DAY ADJUSTMENTS
Page | 4
6. Once all adjusting and balancing entries have been made on 31 December, the Prepaid Rent
account will look like:
a)
Prepaid Rent
30 Sep Bank 1800 31 Dec Rent expense 1200
31 Dec Balance 600
1800 1800
1 Jan Balance 600
b)
Prepaid Rent
30 Sep Bank 1800 31 Dec Rent expense 600
31 Dec Balance 1200
1800 1800
1 Jan Balance 1200
c)
Prepaid Rent
30 Sep Rent expense 1800 31 Dec Bank 1200
31 Dec Balance 600
1800 1800
1 Jan Balance 600
d)
Prepaid Rent
30 Sep Bank 1800 31 Dec Rent expense 900
31 Dec Balance 900
1800 1800
1 Jan Balance 900
7. If the balance-day adjustment to record the rent expense for the period was not made on 31
December, the effect on the firm’s Income Statement would be:
Revenues Expenses Net Profit
a) No effect Understated Overstated
b) No effect Understated Understated
c) No effect Overstated Understated
d) No effect Overstated Overstated

5. VCE ACCOUNTING
UNIT 3 – RECORDING AND REPORTING FOR A TRADING BUSINESS
CHAPTER 14 – BALANCE-DAY ADJUSTMENTS
Page | 5
8. If the balance-day adjustment to record the rent expense for the period was not made on 31
December, the effect on the firm’s Balance Sheet would be:
Assets Liabilities Owner’s Equity
a) Overstated No effect Understated
b) Understated No effect Overstated
c) Understated No effect Understated
d) Overstated No effect Overstated
9. An accrued expense occurs when:
a) The business pays for an expense before it is incurred
b) The business incurs an expense before it is paid
c) The business pays and incurs the expense at the same time
d) All of the above
The owner of a small business has provided the following information relating to the firm’s
transactions during 2015:
 Total sales were $112,000. Of this total, $37,000 were credit sales, $5,000 of which had not
been collected by the end of the year.
 Cost of sales were $45,000 for the year.
 Wages paid during the year were $31,000. In addition, a bonus of $2,000 was earned by an
employee during December, but this had not been paid by balance day.
 Depreciation of vehicles was $1,100 for the year. Depreciation of office furniture was $700.
 Stock as per a stocktake performed on 31 December 2015 was $20,500. At the end of 2015,
the balance of the stock control account was $19,500.
 The annual insurance policy was paid on 1 April 2015 for $1,800. Prepaid insurance at 1
January 2015 was $300.
 Advertising expenses paid totalled $4,700 - $500 of this related to advertising that will be
consumed in 2016.
 Rent expenses for 2015 paid for the period were $16,500. On 31 December an amount of
$1,500 for December 2015 was still owing.
10. Wages expense for the period is:
a) $33,000
b) $31,000
c) $29,000
d) $35,000
11. The insurance expense for the period is:
a) $1,800
b) $2,100
c) $1,650
d) $1,500

6. VCE ACCOUNTING
UNIT 3 – RECORDING AND REPORTING FOR A TRADING BUSINESS
CHAPTER 14 – BALANCE-DAY ADJUSTMENTS
Page | 6
12. The advertising expense for the period is:
a) $4,700
b) $5,200
c) $4,200
d) $3,700
13. The Net Profit for the period is:
a) $13,350
b) $9,500
c) $9,350
d) $12,350
14. The Current Assets and Current Liabilities sections of the firm’s Balance Sheet as at 31
December 2015 will look like:
a)
Balance Sheet (Extract) as at 31 December 2015
$ $ $ $
Current Assets Current Liabilities
Prepaid insurance 450 Accrued wages 2000
Prepaid advertising 500 Accrued rent 1500
b)
Balance Sheet (Extract) as at 31 December 2015
$ $ $ $
Current Assets Current Liabilities
Prepaid insurance 300 Accrued wages 2000
Prepaid advertising 500 Accrued rent 1500
c)
Balance Sheet (Extract) as at 31 December 2015
$ $ $ $
Current Assets Current Liabilities
Prepaid insurance 450 Accrued wages 2000
Accrued advertising 500 Accrued rent 1500
d)
Balance Sheet (Extract) as at 31 December 2015
$ $ $ $
Current Assets Current Liabilities
Accrued wages 2000 Prepaid insurance 450
Accrued rent 1500 Prepaid advertising 500

7. VCE ACCOUNTING
UNIT 3 – RECORDING AND REPORTING FOR A TRADING BUSINESS
CHAPTER 14 – BALANCE-DAY ADJUSTMENTS
Page | 7
At balance-day on 30 June 2015, a firm had accrued advertising of $150 (plus GST) that had not yet
been recorded in the accounting system. On 14 July 2015 the firm paid the accrued advertising
owing.
15. The double-entry required to record the transaction on 30 June 2015 is:
Debit Credit
a) Accrued advertising expense $150 Advertising expense $150
b) Advertising expense $165 Accrued advertising expense $165
c) Advertising expense $150 Bank $150
d) Advertising expense $150 Accrued advertising expense $150
16. The impact of the transaction on 30 June 2015 on the firm’s accounting equation is:
Assets Liabilities Owner’s Equity
a) No effect Increase Increase
b) No effect Decrease Increase
c) No effect Increase Decrease
d) No effect Decrease Decrease
17. The double-entry required to record the transaction on 14 July 2015 is:
Debit Credit
a) Accrued advertising expense $165 Bank $165
b) Bank $150 Accrued advertising expense $150
c) Accrued advertising expense $150
GST clearing $15
Bank $165
d) Accrued advertising expense $150 Advertising expense $150
GST clearing $15

8. VCE ACCOUNTING
UNIT 3 – RECORDING AND REPORTING FOR A TRADING BUSINESS
CHAPTER 14 – BALANCE-DAY ADJUSTMENTS
Page | 8
During 2015 a small business paid a total of $1,700 for marketing expenses. On 31 December 2015
the firm had an account for marketing services provided for $400 (plus GST) which had not yet been
paid. On 17 January 2016, the firm made a cash payment of $600 (plus GST) for marketing expenses
which included payment of the unpaid amount from 2015 in addition to $200 (plus GST) from 2016
(Cheque 45).
18. The General Journal entry required to record the unpaid marketing account at 31 December
2015 is:
a)
General Journal
Date Particulars General Ledger Subsidiary Ledger
Debit $ Credit $ Debit $ Credit $
31 Dec Marketing expense 2100
Accrued marketing expense 2100
b)
General Journal
Date Particulars General Ledger Subsidiary Ledger
Debit $ Credit $ Debit $ Credit $
31 Dec Marketing expense 400
Accrued marketing expense 400
c)
General Journal
Date Particulars General Ledger Subsidiary Ledger
Debit $ Credit $ Debit $ Credit $
31 Dec Accrued marketing expense 400
Marketing expense 400
d)
General Journal
Date Particulars General Ledger Subsidiary Ledger
Debit $ Credit $ Debit $ Credit $
31 Dec Accrued marketing expense 2100
Marketing expense 2100

9. VCE ACCOUNTING
UNIT 3 – RECORDING AND REPORTING FOR A TRADING BUSINESS
CHAPTER 14 – BALANCE-DAY ADJUSTMENTS
Page | 9
19. Once all adjusting and closing entries have been made on 31 December 2015, the ledger
account for marketing expenses will look like:
a)
Marketing Expenses
31 Dec Bank 1700
31 Dec Accrued marketing expenses 400
b)
Marketing Expenses
31 Dec Bank 1700
31 Dec Marketing expenses 400 31 Dec Profit & loss summary 2100
2100 2100
c)
Marketing Expenses
31 Dec Bank 1700
31 Dec Accrued marketing expenses 400 31 Dec Profit & loss summary 2100
2100 2100
d)
Marketing Expenses
31 Dec Bank 1700 31 Dec Accrued marketing expenses 400
31 Dec Profit & loss summary 1300
2100 2100
20. If the adjusting entry required on 31 December 2015 to record the unpaid marketing account
was not recorded, the impact on the firm’s Balance Sheet would be:
Assets Liabilities Owner’s Equity
a) No effect Understated Understated
b) No effect Understated Overstated
c) No effect Overstated Overstated
d) No effect Overstated Understated

10. VCE ACCOUNTING
UNIT 3 – RECORDING AND REPORTING FOR A TRADING BUSINESS
CHAPTER 14 – BALANCE-DAY ADJUSTMENTS
Page | 10
21. The entry required in the firm’s Cash Payments Journal to record the payment of marketing
expenses on 17 January 2016 will be:
a)
Cash Payments Journal
Date Details Chq.
No.
Bank Disc.
Rev.
Creditors
Control
Marketing Sundries GST
17 Jan Accrued marketing expenses 45 600 400
Marketing expenses 200
b)
Cash Payments Journal
Date Details Chq.
No.
Bank Disc.
Rev.
Creditors
Control
Marketing Sundries GST
17 Jan Accrued marketing expenses 45 440 400 40
Marketing expenses 220 200 20
c)
Cash Payments Journal
Date Details Chq.
No.
Bank Disc.
Rev.
Creditors
Control
Marketing Sundries GST
17 Jan Accrued marketing expenses 45 660 400 40
Marketing expenses 200 20
d)
Cash Payments Journal
Date Details Chq.
No.
Bank Disc.
Rev.
Creditors
Control
Marketing Sundries GST
17 Jan Accrued marketing expenses 45 660 400 40
Marketing expenses 200 20

11. VCE ACCOUNTING
UNIT 3 – RECORDING AND REPORTING FOR A TRADING BUSINESS
CHAPTER 14 – BALANCE-DAY ADJUSTMENTS
Page | 11
The books of a small business revealed that the firm has a contract with its cleaners to supply
cleaning services at a cost of $170 per month (plus GST). During the year ended 30 September 2015,
the firm paid a total of $1,870 (plus GST). The cleaning account for September 2015 has not yet been
settled.
22. The amount shown for cleaning expenses in the firm’s Trial Balance and Adjusted Trial Balance
will be:
Trial Balance Adjusted Trial Balance
a) $1700 $1870
b) $1870 $2040
c) $1700 $1700
d) $1870 $1700
On 31 December 2015, a firm provided the following extract of its Trial Balance.
Trial Balance (Extract) as at 31 December 2015
$ $
Prepaid insurance expense 2640
Cleaning expenses 1870
Prepaid rent expense 24000
The firm prepares its reports annually each year on 31 December. The following additional
information has been provided:
 Insurance is charged at a rate of $220 per month. A 12-month policy was prepaid on 1
August 2015.
 The firm has a contract with its cleaners to supply cleaning services at a cost of $170 per
month, paid in the month after the cleaning occurs. The cleaning account for December
2015 has not yet been settled.
 The firm rents its office at a rate of $2,000 per month. Three months of rent have not yet
been consumed.
23. The firm’s insurance expense for the period is:
a) $2,640
b) $1,540
c) $3,760
d) $1,100
24. The firm’s cleaning expense for the period is:
a) $2,040
b) $1,870
c) $1,700
d) $170

12. VCE ACCOUNTING
UNIT 3 – RECORDING AND REPORTING FOR A TRADING BUSINESS
CHAPTER 14 – BALANCE-DAY ADJUSTMENTS
Page | 12
25. The balance of the prepaid rent expense account on 1 January 2016 is:
a) $24,000
b) $18,000
c) $30,000
d) $6,000