Examkin

Question

Difficulty: EasyBalance Sheet Classification of Assets and Liabilities

When preparing the statement of financial position for a sole trading business at year-end, how should an accrued expense, such as an unpaid electricity bill, be classified?

  1. Current liabilityAnswer
  2. B
    Current asset
  3. C
    Non-current asset
  4. D
    Deduction from capital

Answer

Current liability
Accrued expenses represent short-term obligations owed to creditors or service providers that must be settled within twelve months, which fits the definition of a current liability on the statement of financial position.

Step-by-Step Solution

1
Identify the financial nature of an accrued expense
An accrued expense represents a benefit already consumed for which payment has not yet been made at the end of the period.
It constitutes a short-term obligation of the enterprise to an external party.
2
Determine the balance sheet section
Classify as a current liability.
Obligations that are expected to be settled within twelve months or one operating cycle are classified under current liabilities.

Key Concept

Balance Sheet Classification of Current Liabilities
Rate this question

Topics

Balance Sheet Classification of Assets and Liabilities