Which item is normally shown as an asset in a statement of affairs?
Correct answer: D. Prepaid insurance
- A. Outstanding rent
- B. Bank loan
- C. Trade creditors
- D. Prepaid insurance
Explanation
Prepaid insurance represents a future economic benefit and is therefore treated as an asset. Outstanding rent, bank loans and trade creditors are obligations, so they are shown as liabilities.
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About Incomplete Records
Incomplete records require profit and financial position to be reconstructed when a complete double-entry system is unavailable. Methods include statements of affairs, capital comparisons, control accounts, cash summaries and margin calculations to find missing sales, purchases, expenses, assets, liabilities and drawings, while distinguishing business profit from changes in capital.
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