📘 Prepaid Expenses – 100 MCQs

 

📘 Prepaid Expenses – 100 Tough MCQs

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1. Prepaid expenses arise due to violation of:
   A. Matching principle
   B. Prudence
   C. Dual aspect
   D. Cost concept
   Answer: A
2. Prepaid expenses represent:
   A. Expense incurred
   B. Expense paid in advance
   C. Income received
   D. Liability
   Answer: B
3. Prepaid expenses are classified as:
   A. Current liability
   B. Fixed asset
   C. Current asset
   D. Capital
   Answer: C
4. Prepaid expenses lead to:
   A. Understatement of profit if ignored
   B. Overstatement of profit if ignored
   C. No effect
   D. Liability increase
   Answer: A
5. Prepaid insurance is an example of:
   A. Accrued income
   B. Deferred expense
   C. Outstanding expense
   D. Capital loss
   Answer: B
6. Prepaid expenses are shown in:
   A. P&L only
   B. Balance Sheet only
   C. Both
   D. None
   Answer: C
7. Prepaid expenses are deducted from:
   A. Expense
   B. Income
   C. Asset
   D. Liability
   Answer: A
8. Prepaid expenses are added to:
   A. Assets
   B. Liabilities
   C. Expenses
   D. Income
   Answer: A
9. Prepaid expenses relate to:
   A. Past period
   B. Current period
   C. Future period
   D. None
   Answer: C
10. Prepaid expenses follow:
    A. Cash basis
    B. Accrual basis
    C. Market basis
    D. Realisation
    Answer: B
11. Prepaid expenses are also known as:
    A. Outstanding expenses
    B. Deferred expenses
    C. Accrued income
    D. Capital expenses
    Answer: B
12. Prepaid expenses create:
    A. Liability
    B. Asset
    C. Income
    D. Expense
    Answer: B
13. Prepaid expenses are:
    A. Revenue expenditure
    B. Capital expenditure
    C. Income
    D. Liability
    Answer: A
14. Ignoring prepaid expenses results in:
    A. Understated profit
    B. Overstated profit
    C. Correct profit
    D. No change
    Answer: A
15. Prepaid expenses are:
    A. Adjusting entry
    B. Routine entry
    C. Cash entry
    D. Capital entry
    Answer: A
16. Prepaid expenses should be:
    A. Ignored
    B. Recorded
    C. Deleted
    D. None
    Answer: B
17. Prepaid expenses are:
    A. Expense of next year
    B. Expense of current year
    C. Income
    D. Liability
    Answer: A
18. Prepaid rent means:
    A. Rent unpaid
    B. Rent paid in advance
    C. Rent received
    D. Rent outstanding
    Answer: B
19. Prepaid expenses reduce:
    A. Expense
    B. Income
    C. Asset
    D. Liability
    Answer: A
20. Prepaid expenses increase:
    A. Asset
    B. Liability
    C. Income
    D. Expense
    Answer: A
21. Prepaid expenses are recorded at:
    A. Start
    B. End
    C. Anytime
    D. Never
    Answer: B
22. Prepaid expenses ensure:
    A. True profit
    B. Overstated profit
    C. Understated profit
    D. None
    Answer: A
23. Prepaid expenses are shown in Balance Sheet under:
    A. Fixed assets
    B. Current assets
    C. Liabilities
    D. Capital
    Answer: B
24. Prepaid expenses are:
    A. Debit balance
    B. Credit balance
    C. Nil
    D. None
    Answer: A
25. Prepaid expenses are expenses:
    A. Paid but not incurred
    B. Incurred but not paid
    C. Received
    D. None
    Answer: A

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26. Entry for prepaid expense:
    A. Debit Prepaid A/c
    B. Credit Expense A/c
    C. Both
    D. None
    Answer: C
27. Prepaid expense A/c is debited because:
    A. Asset increases
    B. Expense increases
    C. Income increases
    D. Liability decreases
    Answer: A
28. Expense A/c is credited because:
    A. Expense decreases
    B. Expense increases
    C. Asset decreases
    D. Income increases
    Answer: A
29. If insurance ₹12,000 paid for 1 year, 3 months prepaid → expense =
    A. 12,000
    B. 9,000
    C. 3,000
    D. 6,000
    Answer: B
30. Prepaid amount =
    A. Total – used
    B. Used – total
    C. Expense × rate
    D. None
    Answer: A
31. If prepaid ignored, expenses become:
    A. Higher
    B. Lower
    C. Same
    D. Zero
    Answer: A
32. Prepaid expenses affect:
    A. Profit
    B. Assets
    C. Both
    D. None
    Answer: C
33. Prepaid expenses are:
    A. Current asset
    B. Fixed asset
    C. Liability
    D. Capital
    Answer: A
34. Prepaid expenses appear in P&L as:
    A. Deduction
    B. Addition
    C. Income
    D. Liability
    Answer: A
35. Prepaid expenses are carried forward to:
    A. Next year
    B. Previous year
    C. Same year
    D. None
    Answer: A
36. If rent ₹24,000 paid, 6 months prepaid → expense =
    A. 24,000
    B. 18,000
    C. 12,000
    D. 6,000
    Answer: C
37. Prepaid expenses are reversed next year:
    A. Yes
    B. No
    C. Optional
    D. None
    Answer: A
38. Prepaid expenses reduce:
    A. Expense
    B. Asset
    C. Liability
    D. Income
    Answer: A
39. Prepaid expenses are shown as:
    A. Deduct from expense
    B. Add to expense
    C. Income
    D. Liability
    Answer: A
40. Prepaid expenses relate to:
    A. Future benefit
    B. Past benefit
    C. Income
    D. None
    Answer: A

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61. In Railways, prepaid expenses may include:
    A. Insurance
    B. Lease
    C. Maintenance contract
    D. All
    Answer: D
62. Prepaid expenses ensure:
    A. Matching
    B. Prudence
    C. Both
    D. None
    Answer: C
63. Prepaid expenses are:
    A. Accrued
    B. Deferred
    C. Outstanding
    D. None
    Answer: B
64. Prepaid expenses are:
    A. Asset
    B. Liability
    C. Income
    D. Capital
    Answer: A
65. Prepaid expenses represent:
    A. Future benefit
    B. Past benefit
    C. Income
    D. Liability
    Answer: A
66. Prepaid expenses are recorded for:
    A. Accuracy
    B. Profit increase
    C. Tax only
    D. None
    Answer: A
67. Prepaid expenses are included in:
    A. Final accounts
    B. Cash book
    C. Ledger only
    D. None
    Answer: A
68. Prepaid expenses reduce:
    A. Overstatement
    B. Understatement
    C. Error
    D. None
    Answer: A
69. Prepaid expenses are:
    A. Short-term asset
    B. Long-term asset
    C. Liability
    D. Income
    Answer: A
70. Prepaid expenses are shown at:
    A. Year end
    B. Month end
    C. Daily
    D. None
    Answer: A
71. Prepaid expenses are:
    A. Nominal + Real
    B. Real
    C. Personal
    D. None
    Answer: A
72. Prepaid expenses arise when:
    A. Payment made before use
    B. After use
    C. No payment
    D. None
    Answer: A
73. Prepaid expenses ensure:
    A. Correct expense
    B. Incorrect expense
    C. Profit manipulation
    D. None
    Answer: A
74. Prepaid expenses are adjusted through:
    A. Journal
    B. Ledger
    C. Trial balance
    D. None
    Answer: A
75. Prepaid expenses are:
    A. Advance payment
    B. Due payment
    C. Income
    D. Liability
    Answer: A
76. Prepaid expenses affect:
    A. Profit
    B. Asset
    C. Both
    D. None
    Answer: C
77. Prepaid expenses are essential for:
    A. True financial position
    B. False
    C. Profit only
    D. None
    Answer: A
78. Prepaid expenses are:
    A. Expense of next year
    B. Income
    C. Liability
    D. Capital
    Answer: A
79. Prepaid expenses must be:
    A. Disclosed
    B. Ignored
    C. Hidden
    D. None
    Answer: A
80. Prepaid expenses reduce:
    A. Current year expense
    B. Future expense
    C. Income
    D. Liability
    Answer: A
81. Prepaid expenses increase:
    A. Asset
    B. Liability
    C. Income
    D. Capital
    Answer: A
82. Prepaid expenses are:
    A. Adjustment
    B. Error
    C. Income
    D. None
    Answer: A
83. Prepaid expenses are:
    A. Current asset
    B. Fixed asset
    C. Liability
    D. Income
    Answer: A
84. Prepaid expenses ensure:
    A. Matching
    B. Profit
    C. Cash flow
    D. None
    Answer: A
85. Prepaid expenses are recorded to:
    A. Avoid overstatement
    B. Avoid understatement
    C. Both
    D. None
    Answer: C
86. Prepaid expenses relate to:
    A. Future
    B. Past
    C. Present
    D. None
    Answer: A
87. Prepaid expenses are:
    A. Paid in advance
    B. Paid after
    C. Unpaid
    D. None
    Answer: A
88. Prepaid expenses reduce:
    A. Expense
    B. Income
    C. Liability
    D. Capital
    Answer: A
89. Prepaid expenses increase:
    A. Asset
    B. Expense
    C. Liability
    D. Income
    Answer: A
90. Prepaid expenses are:
    A. Deferred expense
    B. Outstanding
    C. Income
    D. None
    Answer: A
91. Prepaid expenses are necessary for:
    A. True accounts
    B. False
    C. Profit only
    D. None
    Answer: A
92. Prepaid expenses are recorded as:
    A. Asset
    B. Liability
    C. Income
    D. Capital
    Answer: A
93. Prepaid expenses are:
    A. Current asset
    B. Liability
    C. Capital
    D. Income
    Answer: A
94. Prepaid expenses ensure:
    A. Accuracy
    B. Error
    C. Profit increase
    D. None
    Answer: A
95. Prepaid expenses are:
    A. Advance
    B. Due
    C. Income
    D. None
    Answer: A
96. Prepaid expenses are:
    A. Adjustment
    B. Routine
    C. Cash
    D. None
    Answer: A
97. Prepaid expenses reduce:
    A. Expense
    B. Asset
    C. Liability
    D. Income
    Answer: A
98. Prepaid expenses increase:
    A. Asset
    B. Income
    C. Liability
    D. Expense
    Answer: A
99. Prepaid expenses are:
    A. Asset
    B. Liability
    C. Income
    D. Capital
    Answer: A
100. Prepaid expenses are required for:
     A. True profit
     B. False profit
     C. No effect
     D. None
     Answer: A

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