Which one of the following statements is correct?
A)Prepayments are included as part of liabilities in the statement of financial position.
B)Accruals are included as part of liabilities in the statement of financial position.
C)Accruals reduce the amount of expenses for inclusion in the statement of profit or loss.
D)Prepayments reduce the amount of expenses for inclusion in the statement of profit or loss.

Question

Quizplus · Accepted Answer

Prepayments are recorded as assets on the statement of financial position, while accruals are recorded as liabilities. Accruals represent expenses that have been incurred but not yet paid or recorded, and are included in the liabilities section of the statement of financial position. Accruals do not reduce the amount of expenses for inclusion in the statement of profit or loss; instead, they increase the amount of expenses to properly match them with the revenue they helped to generate. Prepayments, on the other hand, reduce the amount of expenses for inclusion in the statement of profit or loss by recording the expense in the current period, even if the payment was made in advance.

Which One of the Following Statements Is Correct