Which of the following adjustments would increase the profit reported in the income statement?
Question 1 Report
Which of the following adjustments would increase the profit reported in the income statement?
Answer Details
The correct answer is increasing the closing prepayment.
A larger closing prepayment means a greater portion of the cash paid during the year is treated as a current asset rather than an expense. This reduces the expense charged to the income statement, which increases reported profit.
Recording an accrued expense increases expenses and reduces profit. Recording a prepaid expense as a current period charge increases expenses. Reducing the closing prepayment increases the expense recognised, reducing profit.
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