An electricity bill of Rs. 12,000 is outstanding at the end of the accounting year. What is the correct treatment?
Correct answer: B. Add Rs. 12,000 to electricity expense and show it as a liability
- A. Deduct Rs. 12,000 from electricity expense and show it as an asset
- B. Add Rs. 12,000 to electricity expense and show it as a liability
- C. Ignore Rs. 12,000 until it is paid in cash
- D. Add Rs. 12,000 to capital and show it as income
Explanation
An accrued expense relates to the current accounting period, even though it remains unpaid. Therefore, it is added to electricity expense in the income statement and recorded as a current liability.
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About Financial Statements of Sole Traders
Sole trader statements calculate revenue, cost of sales, gross profit, operating expenses and net profit, then present assets, liabilities and owner’s capital in the statement of financial position. Adjustments for closing inventory, accruals, prepayments, depreciation, bad debts, drawings and additional capital connect the two statements.
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