Which of the following is true relating to Income and expenditure accounta)Give fair idea of earned positionb)Records all transactions without distinguishing among current , previous and succeeding accounting periodsc)An assets accountd)Adjustments relating to prepaid and outstanding expenses etc. are madeCorrect answer is option 'D'. Can you explain this answer?

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Answer

In the normal course of business, some of the expenses may be paid in advance. However, the organization may not receive the benefits from these expenses by the end of the current accounting year. We call these expenses as prepaid expenses. We treat them as current assets.

Sometimes in the normal course of business, an enterprise may have some expenses relating to which the payment is due at the end of the year. We know these expenses as Outstanding Expenses.

Wages, salary, rent, interest on the loan, etc. are examples of such expenses that may remain due at the end of the accounting year.

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