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Questions and Answers
What is the purpose of an accruals adjustment at the end of an accounting period?
Which of the following would be a valid reason for making a prepayment adjustment at the end of an accounting period?
What is the purpose of a depreciation adjustment at the end of an accounting period?
What is the purpose of a provision for doubtful debts at the end of an accounting period?
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Which of the following would NOT be a period-end adjustment?
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A company has an electricity bill of $1,500 for the quarter ending 31 March. However, the invoice has not been received yet. What adjustment would be required at the period end?
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A company has paid $2,000 in advance for rent that will be used up in the next quarter. What adjustment would be required at the period end?
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A company has income that has been earned but not yet received. What adjustment would be required at the period end?
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A company has a machine that is expected to last for 5 years. What adjustment would be required at the period end to reflect the decrease in the machine's value?
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A company provides a warranty for its products. What adjustment would be required at the period end to reflect the potential cost of warranty claims?
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Study Notes
Period End Adjustments in FAPS Exam Task 2
- Task 2 in the Level 3 AAT FAPS exam requires candidates to record and make period-end adjustments
- Period-end adjustments are necessary to ensure financial statements accurately reflect a company's financial position and performance
- Adjustments may include accruals, prepayments, depreciation, and bad debts, among others
Recording Period End Adjustments
- Adjustments are recorded in the journal, with a clear narrative explaining the reason for the adjustment
- Each adjustment must be supported by relevant calculations and ledger account references
- Adjustments are then posted to the ledger accounts, updating the balances accordingly
Types of Period End Adjustments
- Accruals: expenses incurred but not yet paid or recorded, e.g. unpaid wages or utilities
- Prepayments: payments made in advance, e.g. rent or insurance premiums
- Depreciation: allocation of asset cost over its useful life, e.g. machinery or vehicles
- Bad debts: amounts owed by customers that will not be recovered
Importance of Period End Adjustments
- Accurate financial statements are essential for stakeholders to make informed decisions
- Adjustments ensure compliance with accounting standards and principles
- Failure to make necessary adjustments can lead to misrepresentation of financial performance and position
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Description
Test your knowledge on recording and making period end adjustments in the AAT FAPS exam. This quiz covers task 2 of the FAPS exam and assesses your understanding of accounting principles and adjustments. Practice now and improve your chances of passing the exam!
