Question

Some of the following are examples of accrued transactions:

1.Transfer of payment for prepayment of rent for the next two years.

2.Transfer of customer deposit penalties for work that has not yet been carried out.

3.The recognition of interest payments on a loan where the principal and interest are paid next year.

4. None of the above is correct.

Answer 1

Accrued Transactions: We will understand the term accrual first. It must be understood in two scenarios. i.e., for Revenue and Expenses point of views. For.,

Revenue: Here, revenue is earned but its not yet recorded in the books of accounts.

Expenses: Here, expense is incurred but its not yet recorded in the books of accounts.

Option 1: INCORRECT. because it's a prepaid expense not an already incurred expense. so this is not considered as Accrued transaction.

Option 2: INCORRECT. because here customer has deposited amount with us as a deposit for penalty, BUT the work is NOT YET started. Actually its not Earned Revenue. So, this is not considered as Accrued transaction.

Option 3: INCORRECT. because " The recognition of interest " for a future period cannot be considered as accrued transaction. It will be considered as accrued transaction ONLY if interest is already INCURRED and Yet to be paid.

Option 4: CORRECT. Since, all the other options are incorrect.