Outstanding and prepaid expenses and incomes are taken into account in determining profit or loss under _________________.
A
Cash system of accounting.
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B
Mercantile system of accounting.
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C
Both (A) and (B).
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D
None of the above.
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Solution
The correct option is C Mercantile system of accounting. Accrual system of Accounting is also known as the mercantile system of accounting wherein the transactions are recognized and recorded as and when they take place.
Under the accrual accounting method, the revenue is recorded when it is actually earned, and the expenses are reported when they are incurred.
Hence,Outstanding and prepaid expenses and incomes are taken into account in determining profit or loss under mercantile /Accrual system of accounting.