An accrued expense recorded at year-end is reversed at the beginning of the next period. What is the purpose of the reversal?
Correct answer: B. To prevent the later cash payment from being recorded as expense twice
- A. To recognize the expense twice in both periods
- B. To prevent the later cash payment from being recorded as expense twice
- C. To convert the liability into a fixed asset
- D. To cancel the original expense permanently
Explanation
The reversal removes the prior-period accrual so that the subsequent payment can be recorded through the normal expense or payable process. This avoids double counting the expense in the next period. The original expense remains correctly reported in the period in which it was incurred.
Report an error
The more specific you are, the faster it gets fixed. A source beats an opinion.
Prefer email? support@testustad.com
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.
Practise Accruals, Prepayments and Provisions
34 free Accruals, Prepayments and Provisions MCQs from Accounting, each with the correct answer and an explanation. Unlimited attempts, no account needed.
Exams that ask Accounting questions like this
Accounting is on 3 papers prepared for on TestUstad, and all of them draw the same bank, so this question is worth knowing for every one of them.
More Accruals, Prepayments and Provisions questions
A business pays Rs 48,000 on 1 December for a four-month maintenance contract covering December through March. What amounts are reported at 31 December?
A provision under IAS 37 is measured at the amount that represents management's:
Under IAS 37, a possible obligation arising from a past event that depends on an uncertain future event is generally called a:
A provision differs from an ordinary trade payable mainly because the provision has greater uncertainty about its:
Under accrual accounting, revenue is generally recognized when it is:
Cash received from a customer before the related service is provided is normally recorded as a: