PRC-1 · Chapter 4 · Question 31 of 100
'TechNova' paid Rs. 100,000 in advance to 'CloudServe' for a one-year software subscription. In the books of 'TechNova', how is this advance payment classified before the software services are actually consumed?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) Prepaid Expense (Current Asset)
Explanation
When a business pays for a service in advance, it is classified as a prepaid expense. It remains a current asset on the statement of financial position until the service is consumed over time.
More Accruals and Prepayments MCQs
- Q33'Pinnacle Manufacturers' paid Rs. 450,000 for electricity during the financial year. At the start of the year, accrued electricity was Rs…
- Q34'Silver Oak Traders' pays an annual fire insurance premium of Rs. 180,000 every year on 1 September. Their financial year ends on 31…
- Q35An accrued consulting income of Rs. 25,000 was mistakenly recorded by 'Nexus Consulting' as unearned income of Rs. 25,000. What is the…
- Q36'Alpha Builders' acquired a bank loan of Rs. 2,000,000 at a 10% annual interest rate. Interest is paid quarterly. The last quarter's…
- Q37At year-end, 'Omega Services' has provided IT services worth Rs. 80,000 to a client but has not yet billed them or received cash. What is…