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Questions and Answers
What is the purpose of an accruals adjustment at the end of an accounting period?
What is the purpose of an accruals adjustment at the end of an accounting period?
- To correct errors in the accounting records
- To record expenses that have been incurred but not yet paid (correct)
- To recognize revenue that has been earned but not yet received
- To adjust for depreciation
Which of the following would be a valid reason for making a prepayment 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?
- To recognize revenue that has been earned but not yet received
- To adjust for the amount of a payment that relates to a future period (correct)
- To record a depreciation expense
- To correct an error in the purchase ledger
What is the purpose of a depreciation adjustment at the end of an accounting period?
What is the purpose of a depreciation adjustment at the end of an accounting period?
- To allocate the cost of a tangible asset over its useful life (correct)
- To correct errors in the accounting records
- To recognize revenue that has been earned but not yet received
- To record expenses that have been incurred but not yet paid
What is the purpose of a provision for doubtful debts at the end of an accounting period?
What is the purpose of a provision for doubtful debts at the end of an accounting period?
Which of the following would NOT be a period-end adjustment?
Which of the following would NOT be a period-end adjustment?
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?
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?
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?
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?
A company has income that has been earned but not yet received. What adjustment would be required at the period end?
A company has income that has been earned but not yet received. What adjustment would be required at the period end?
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?
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?
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?
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?
Flashcards
Accruals Adjustment Purpose
Accruals Adjustment Purpose
Records expenses incurred but not yet paid at the end of an accounting period.
Prepayment Adjustment Reason
Prepayment Adjustment Reason
Adjusts for payments made for future periods at the end of an accounting period.
Purpose of Depreciation Adjustment
Purpose of Depreciation Adjustment
Distributes the cost of a tangible asset over its useful life in an accounting period.
Doubtful Debts Provision Purpose
Doubtful Debts Provision Purpose
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Non-Period-End Adjustment Example
Non-Period-End Adjustment Example
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Electricity Bill Adjustment
Electricity Bill Adjustment
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Rent Prepayment Adjustment
Rent Prepayment Adjustment
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Unearned Income Adjustment Type
Unearned Income Adjustment Type
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Machine Depreciation Adjustment
Machine Depreciation Adjustment
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Warranty Provision Adjustment
Warranty Provision Adjustment
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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!
