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Question

State the meaning of

(a) Outstanding expenses

(b) Prepaid expenses

(c) Income received in advance

(d) Accrued income


Solution

(a) Outstanding Expenses - Outstanding expenses are those expenses which are still to be paid these are the expenses which are treated as liabilities (Current Liability) and add to the concerned expenditure in Profit and Loss Account.

(b) Prepaid Expenses - Prepaid expenses are those expenses which have been paid in advance for the next financial year, these are the expenses which are treated as Assets (Current Assets) and deducted from the concerned expenses in the current financial year.

(c) Income Received in Advance - These are the income which we have not earned but received in advance for the next financial year they are treated as liability till the work is done in this regard and deducted from the concerned income in Profit and Loss Account and shown as a liability in Balance Sheet of current financial year.

(d) Accrued Income - This is the income which we have earned in the current financial year but still not received the same. It is treated as assets and added to the concerned income in the current year to get the actual profit figure for the current year.

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