1. Which of the following represents an accrual? A. Accumulated depreciation B.

Question

1. Which of the following represents an accrual? A. Accumulated depreciation B. Fees earned C. Prepaid insurance D. Wages payable
2. If the adjustment for prepaid expenses is not recorded A. Net income will be correctly stated B.assets will be understated C.net income will be overstated D. Expenses will be overstated 1. Which of the following represents an accrual? A. Accumulated depreciation B. Fees earned C. Prepaid insurance D. Wages payable
2. If the adjustment for prepaid expenses is not recorded A. Net income will be correctly stated B.assets will be understated C.net income will be overstated D. Expenses will be overstated A. Accumulated depreciation B. Fees earned C. Prepaid insurance D. Wages payable
2. If the adjustment for prepaid expenses is not recorded A. Net income will be correctly stated B.assets will be understated C.net income will be overstated D. Expenses will be overstated

Explanation / Answer

1. Option B is the answer

In simple terms, accrual is reporting of revenues and expenses, during the period they are earned even if cash is actually not recieved. Only 'Fees earned' falls into such category. Fees may have been earned, but may be Recievable in next period.

2. Option C is the answer

If adjustment for prepaid expenses is not recorded, expenses will be understated by that amount. Which in turn results in overstating of net income.

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