A business has a prepaid expense of Rs 6,000 at the beginning of the year. It pays Rs 30,000 during the year and has a prepaid balance of Rs 10,000 at year-end. What expense is recognized?
Correct answer: B. Rs 26,000
- A. Rs 14,000
- B. Rs 26,000
- C. Rs 30,000
- D. Rs 46,000
Explanation
Expense equals the opening prepaid balance plus payments made, less the closing prepaid balance. Thus, Rs 6,000 + Rs 30,000 - Rs 10,000 equals Rs 26,000.
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About Accruals, Prepayments and Provisions
Accruals and prepayments adjust income and expenses to the accounting period in which they are earned or incurred, following the matching principle. Provisions recognise expected obligations or losses when their amount or timing is uncertain, which distinguishes them from ordinary accruals and from general reserves.
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