On reviewing the financial statements, a company's accountant discovered that annual rental of £5,000 paid by the company in advance on 30 June Year 2 had been treated in full as an expense for the year ended 31 December Year 2. What will be the effect on the income statement (profit and loss account) and statement of financial position (balance sheet) when the necessary adjustment is made? a) Profit will decrease by £5,000 and payables (creditors) due within one year will increase by £5,000 b) Profit will increase by £5,000 and current assets will increase by £5,000 c) Profits will increase by £2,500 and current assets will increase by £2,500 d) Profits will decrease by £2,500 and current assets will increase by £2,500

On reviewing the financial statements, a company's accountant discovered that annual rental of £5,000 paid by the company in advance on 30 June Year 2 had been treated in full as an expense for the year ended 31 December Year 2. What will be the effect on the income statement (profit and loss account) and statement of financial position (balance sheet) when the necessary adjustment is made? a) Profit will decrease by £5,000 and payables (creditors) due within one year will increase by £5,000 b) Profit will increase by £5,000 and current assets will increase by £5,000 c) Profits will increase by £2,500 and current assets will increase by £2,500 d) Profits will decrease by £2,500 and current assets will increase by £2,500

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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