JAMB UTME - Principles of Accounts - 2023

Determine the net profit

Answer Details

To determine the net profit, we need to calculate the Cost of Goods Sold (COGS) and deduct it from the net sales.
First, let's calculate the COGS: - Start with the stock on January 1st: 2,600 - Add purchases: 4,000 - Add carriage inwards: 500
Total Cost of Goods Available for Sale: 7,100
Next, let's calculate the net sales: - Total Sales: 9,000 - Deduct carriage outwards: 500
Net Sales: 8,500
Now, we can calculate the COGS by dividing the net sales by the total cost of goods available for sale and multiplying by 100: COGS = (COGS / Total Cost of Goods Available for Sale) * Net Sales
COGS = (7,100 / 8,500) * 100 COGS = 83.53%
Finally, we can calculate the net profit by deducting the COGS from the net sales: Net Profit = Net Sales - COGS
Net Profit = 8,500 - (8,500 * 0.8353) Net Profit = 8,500 - 7,098.75 Net Profit = 1,401.25
Therefore, the net profit is #1,401.25.
The correct answer is: #1,400

A part of public company's profit belonging to the shareholders is

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The part of a public company's profit that belongs to the shareholders is called dividends. Dividends are payments made by a company to its shareholders as a reward for owning its stock. They are usually distributed in the form of cash but can also be given as additional shares of stock. Dividends are a way for shareholders to earn a return on their investment. When a company earns a profit, it can choose to reinvest that money back into the business or distribute it to the shareholders. By receiving dividends, shareholders can directly benefit from the company's success. It is important to note that dividends are not guaranteed and can vary from year to year. The company's board of directors decides whether to declare dividends and how much to distribute based on factors such as profitability, financial health, and future growth prospects. Unlike dividends, the other options mentioned (right issue, bonus, and public issue) do not represent a share of the company's profit. A right issue is when a company offers its existing shareholders the right to buy additional shares at a discounted price. A bonus is an additional issue of shares given to existing shareholders as a way to increase their ownership percentage. A public issue refers to the process of offering shares to the general public for the first time during an initial public offering (IPO) or a subsequent public offering. In summary, dividends are the part of a public company's profit that is distributed to the shareholders as a way for them to earn a return on their investment.

Danladi Bako's Statement of Affairs as at 30/06/17

 

What is his bank balance as at 30/06/17?

Answer Details

Bank balance = 78,650 - ( 4000 + 20500 + 40000)
= 78650 - 64500
= ₦14,150

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The ultimate controller, refers to the shareholder who has the ultimate control in the company and is not controlled by anyone. This ownership structure often results in a certain level of control between the ultimate controller and the listed company.

Which of the following is recorded in the folio column of the journal?

Answer Details

The folio column in a journal is used to record the page number or reference of the ledger account where the transaction is being posted. It helps in linking the journal entry to the specific account in the ledger. So, out of the given options, the **particulars of transactions** are recorded in the folio column of the journal. The particulars describe the details of the transaction, such as the accounts involved, the description of the transaction, and any additional information related to the transaction. The **date of entries** is usually recorded in a separate column in the journal to track when the transaction occurred. The option **all credit and cash sales transactions** is not directly related to the folio column. It is more about the type of transactions being recorded, not where they are being posted. Lastly, the **amount of money posted** is typically recorded in the respective debit or credit column of the journal, depending on whether it is a debit or credit transaction. Overall, the folio column in the journal is specifically used for recording the reference to the relevant account in the ledger where the transaction is being posted.

Answer Details

In company accounting, dividend payments are typically effected in the "appropriation" account. The appropriation account is used to record the allocation of profits or income within a company. It is where the company's board of directors decides how to distribute the company's earnings to its shareholders. Dividend payments are a way for a company to distribute its profits to its shareholders. By making dividend payments, the company shares a portion of its earnings with its owners. When a company decides to pay dividends, the amount to be distributed is transferred from the retained earnings account (which is part of the equity section of the balance sheet) to the appropriation account. This transfer signifies that the profits are being allocated for distribution as dividends. By using the appropriation account for dividend payments, the company can clearly track and document the distribution of profits to shareholders. This helps provide transparency and ensure that dividends are properly accounted for in the company's financial records. To summarize, dividend payments in a company are typically recorded in the "appropriation" account, where the allocation of the company's earnings to shareholders is documented.

Given:

I. Settlement of debts
II. Cessation of business
III. Introduction of assets
IV. Disposal of assets

Which of these constitutes dissolution of partnership?

Answer Details

Bankruptcy of a partner, illegality of object of the business, expiration of the time given, non performance of the business, admission of a new partner, withdrawal or retirement of partners give rise to dissolution of partnership.

The assumption that a business will continue to exist into the foreseeanle future is recognized by a concept called

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The concept that recognizes the assumption of a business continuing to exist into the foreseeable future is called "going concern." This concept assumes that a business will not be liquidated or cease to operate in the near future. It is based on the belief that businesses are established with the intention of operating indefinitely, unless there is evidence to suggest otherwise. The "going concern" concept is important because it affects how a business's financial statements are prepared. When preparing financial statements, the assumption is made that the business will continue its operations and fulfill its commitments. This assumption allows the use of historical cost accounting, where assets and liabilities are recorded at their original cost. In simpler terms, the "going concern" concept basically means that when a business is being evaluated, it is assumed to be an ongoing entity with no immediate plans of shutting down. This assumption allows for consistent and reliable financial reporting, as it reflects the expectation that the business will continue its operations and meet its obligations in the future.

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Current assets are shown in the balance sheet in order of performance as **stock, debtors, bank, and cash**. Stock refers to the inventory or goods a business holds for resale. It is shown first because it represents an essential part of a business's operations. By displaying stock at the top, it emphasizes its importance in the business's overall performance. Debtors are individuals or entities who owe money to the business. They come next because the amounts owed by debtors are expected to be converted into cash within a relatively short period. It is important for the business to accurately track and assess the amounts owed to maintain healthy cash flow. Bank refers to the amount of money held in the business's bank accounts. This includes funds available for immediate use and those that may require a few days to clear. Bank balances are considered highly liquid assets and hold a significant position in the balance sheet. Cash represents physical currency and cash equivalents held by the business. It is displayed last in the order of performance since it is the most liquid asset and readily available for immediate use. Therefore, the correct order of performance for current assets on the balance sheet is stock, debtors, bank, and cash.

Answer Details

Prime cost = Cost of raw materials consumed + Manufacturing wages + Royalties
= 15600 + 42000 + 300
= ₦57,900

The following was extracted from the books of MEGA COMPANY NIG. LTD

The working capital of the company is

Answer Details

Working capital = Current Assets - Current Liabilites
= (350,000 + 25,000 + 5,500) - ( 116,500 + 7,500)
= 380,500 - 124, 000
= ₦256,500

A double entry for a transaction that offsets one amount against another on both sides of the cashbook is a

Answer Details

A double entry for a transaction that offsets one amount against another on both sides of the cashbook is called a contra entry.
A contra entry is used when there is a need to record two opposite and equal transactions simultaneously in the books of accounts. In other words, it involves recording an amount on the debit side and an equal amount on the credit side of the cashbook.
The purpose of a contra entry is mainly to highlight the cancellation or offsetting of a previous entry. This type of entry helps to accurately track and reconcile transactions that involve the movement of funds within the same account or between different accounts.
For example, let's say that a company needs to withdraw cash from its bank account to pay off a loan. In this case, a contra entry would be made to reflect both sides of the transaction. The cash withdrawal would be recorded as a debit in the cashbook, representing the decrease in cash, and as a credit in the bank account, representing the decrease in the outstanding loan.
Contra entries are essential for maintaining the accuracy and integrity of financial records. They ensure that all debit and credit transactions are properly recorded, allowing for accurate financial reporting and analysis.

When expenses are paid on behalf of the venture, the accounting entries is to debit

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Expenditure paid on bahalf of joint venture
Accountint entries:
Dr: Joint venture account
Cr: Bank account

Which of these is not method of stock valuation?

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The methods of stock valuation are: FIFO, LIFO, Weighted Average Price Method, Simple Average Price Method, Base stock method.

When goods are received from head office, head office will be credited while

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Goods received from head office
Accounting entries:
Dr: Purchase account
Cr: Head office current account

Bello withdraws cash from bank to office, this is called ---------- entry

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Contra entry is an entry which is recorded to reverse or offset an entry on the other side of an account. If a debit entry is recorded in an account, it will be recorded on the credit side and vice-versa.

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To calculate the amount of preference shares dividends payable at the end of the year, we need to consider the number of preference shares and the dividend rate. In the given information, we know that Larry Limited has 150,000 preference shares of ₦1 each fully paid. The dividend rate for these preference shares is mentioned as 5%. To calculate the total dividend payable for the preference shares, we can multiply the number of preference shares by the dividend rate. 150,000 preference shares x 5% dividend rate = 7,500. Therefore, the amount of preference shares dividends payable at the end of the year is ₦7,500.

Which of the following is used to service all operations of government?

Answer Details

The option that is used to service all operations of government is **consolidated revenue fund**. The consolidated revenue fund is like a big pot where all the money collected by the government goes into. This includes the taxes that people and businesses pay, as well as other sources of revenue such as fees and fines. Once the money is in the consolidated revenue fund, it is then used to pay for various government expenses. This includes things like salaries of government employees, funding for public programs and services, and infrastructure projects like building roads and schools. The important thing to note is that the consolidated revenue fund is used to cover all aspects of government operations. It is the central source of income that allows the government to function and provide services to the public. Therefore, the correct option that is used to service all operations of government is the **consolidated revenue fund**.

When starting with the cash book balance in preparing the bank reconciliation statement, the followings are added except

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When starting with balanace as per cash book, unpresented cheques, dividend, credit transfers are added while uncredited cheques, bank charges, dishonoured cheuqes, standing order are substracted.

Changes in the profit sharing ratio may occur as a result of

I. skill contributed by partners
II. health status
III. old age
IV. Intangible asset increase

Answer Details

Change in profit sharing ratio may occur as a result of the following:
- changes in skill contributed by partners
- ill health
- old age

The authority to transfer fund from one head to another within the same organization is called

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The authority to transfer funds from one head to another within the same organization is called virement.
Virement is a process that allows organizations to shift money from one budget head to another. This transfer of funds is done to reallocate resources based on the changing needs and priorities of the organization.
For example, let's say an organization has allocated a certain amount of money for a particular project in their budget. However, during the course of the year, they realize that another project requires additional funding. Instead of going through a lengthy process of obtaining new funds, the organization can use virement to transfer money from the initial project's budget to the new project's budget.
Virement provides flexibility and allows organizations to make adjustments without having to seek additional approvals or go through administrative hurdles. It is an internal process that helps ensure efficient resource utilization within an organization.
In summary, virement is the authority to transfer funds from one head to another within the same organization. It allows for the reallocation of financial resources based on changing priorities and needs.

Which of these is not a subsidiary books?

Answer Details

The subsidiary book is a book of original entr or prime entry which consists of: purchases day book, sales day book, returns inwards day book, returns outward day book, cash book, journal, petty cash book.

Income and Expenditure account is the same as the --------- of a sole trader

Answer Details

The correct answer is profit and loss account.
The Income and Expenditure account is the same thing as the profit and loss account for a sole trader.
The profit and loss account shows all the revenue and expenses incurred by the sole trader during a specific period of time, usually a year. It includes all the sales or income earned by the sole trader, as well as the costs and expenses incurred in running the business.
The revenue or income includes sales from products or services, any interest earned, and other sources of income. The expenses include costs incurred in producing or providing the products or services, wages or salaries of employees, rent, utilities, and other operating expenses.
By subtracting the total expenses from the total revenue, the profit or loss for the sole trader can be calculated. If the revenue is higher than the expenses, it represents a profit, while if the expenses exceed the revenue, it represents a loss.
In summary, the profit and loss account, or the Income and Expenditure account, for a sole trader shows the financial performance of the business by summarizing the revenues and expenses over a specific period. It helps the sole trader assess the profitability of the business and make informed decisions.

Salaries in arrears is treated in the balance sheet as a

Answer Details

Salaries in arrears are treated in the balance sheet as a **current liability**. A balance sheet is a financial statement that shows a company's financial position at a specific point in time. It consists of three main sections: assets, liabilities, and owners' equity. Salaries in arrears are payments that a company owes to its employees for work that has already been performed but not yet paid. This is usually the result of a timing difference between when the work was done and when the payroll is processed. Since these unpaid salaries are obligations that need to be settled within one year, they are classified as current liabilities. Current liabilities are debts or obligations that must be paid within a year or the normal operating cycle of a business, whichever is longer. By reporting salaries in arrears as a current liability on the balance sheet, it provides information to stakeholders, such as investors and creditors, about the company's short-term financial obligations. It helps to give a more accurate picture of the company's financial health and its ability to meet its current obligations. Therefore, salaries in arrears are considered a current liability on the balance sheet.

The use of three column cash book is determined by

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The cash discount is allowed for prompt payment of an account or for payment within a specified period of time. It is divided into discount allowed and discount received.

Which of these is the main source document for recording cash paid into bank?

Answer Details

The main source document for recording cash paid into a bank is the pay-in-slip.
A pay-in-slip is a form provided by the bank that is filled out by the depositor when cash is deposited into their bank account. It includes important details such as the depositor's name, account number, and the amount of cash being deposited. The pay-in-slip also contains fields for the bank teller to acknowledge the deposit and stamp it.
When a person or business receives cash payments, they need to deposit that cash into their bank account. To do this, they would typically visit the bank and fill out a pay-in-slip with all the necessary information. The pay-in-slip serves as a record of the transaction and provides proof of the deposit made.
Unlike the other options mentioned, an invoice is a document that is issued by a seller to a buyer, indicating the products or services provided and outlining the amount due. A credit note is a document issued by a seller to a buyer to acknowledge a refund or credit towards a future purchase. A cheque book contains blank cheques that can be used to make payments from the account.
In summary, while invoices, credit notes, and cheque books have their own purposes, the pay-in-slip is the specific document designed for recording cash paid into a bank. It is important to use the correct source document to maintain accurate records of financial transactions.

Larry Limited has 4,000,000 ordinary shares of 50k each and 150,000 5% prefrence shares of ₦1 each fully paid.
 

At the end of the period, what is the balance of the profit and loss appropriation account?

Answer Details

Balance c/d = net profit + profit and loss - ( goodwill + ordinary share + preference share)
= (90,000 + 10,000) - ( 1000 + 25000 + 7500)
= 100,000 - 33500
= ₦66500

The following are importance of branch account except

Answer Details

Branch accounts are important tools that assist organizations in effectively managing their branch operations. They provide valuable information about the performance and profitability of each branch. However, **the importance of branch accounts does not include allowing fraud and wastage of resources**. Let's look at the other three options: 1. **Assisting the organization to determine the performance of a branch manager**: Branch accounts help evaluate the performance of a branch manager by providing detailed financial information about their branch. This can include sales revenue, expenses, and profit or loss generated by the branch. By analyzing this information, the organization can assess how well the branch manager is managing their resources and achieving targets. 2. **Enabling the organization to determine the branch that is making either profit or loss**: Branch accounts provide clear insights into the profitability or loss incurred by each branch. This information is crucial for decision-making purposes, such as whether to allocate additional resources, close an unprofitable branch, or implement measures to improve the performance of a struggling branch. 3. **Allowing proper control over the branch by the head office**: Branch accounts facilitate effective control and oversight of branch operations by the head office. By maintaining detailed financial records, the head office can monitor the financial performance of each branch, identify any irregularities, and take corrective actions when needed. This control ensures that the overall functioning of the branches is aligned with the organization's objectives and policies. In summary, while branch accounts are instrumental in evaluating branch manager performance, determining profitability, and ensuring control over branch operations, they do not permit fraud or wastage of resources.

Dairo and Segun are in partnership sharing profits and losses in the ratio 2:3 respectively. The information below relates to their business for the year ended 31st December, 2018.
 

- Interest on drawings 10%

- Interest on capital 5%

- Profit for the year ₦36,000

- Salary: Segun ₦10,000
Segun's share of profit is

Answer Details

Interest on drawings = 10%
- Dairo = 10% x 12,0000
= ₦1200
- Segun = 10% x 18,000
= ₦1800

Interest on capital = 5%
- Dairo = 5% x 120,000
= ₦6,000
- Segun = 5% x 60,000
=₦3,000

Salary: segun = ₦10,000

Segun's share of profit = (Net profit + int on drawings) - ( int on capital + segun salary )
= (36000 + 1200 + 1800) - ( 6000 + 3000 + 10000)
= 39000 - 19000
= 20,000

Total ratio = 2+ 3
= 5
Therefore, Segun share of profit = 3 /5 x 20000
= ₦12,000

Which of the following concepts recognizes the principle of double entry?

Answer Details

The concept that recognizes the principle of double entry is **dual aspect**. In simple terms, double entry accounting is a system that records all financial transactions for a business in at least two different accounts. These accounts are known as the debit and credit side. The dual aspect concept is based on the idea that every transaction has two effects - it affects one account by debiting it and another account by crediting it. For example, let's say a company receives cash for the sale of a product. In this transaction, the company's cash account is increased (debited) because it receives cash, and its sales revenue account is increased (credited) because it generates revenue from the sale. By following the dual aspect concept, all financial transactions are recorded in a systematic way, ensuring that the accounting equation remains in balance. The accounting equation states that assets equal liabilities plus equity. This means that for every debit entry, there must be an equal and opposite credit entry, keeping the equation in equilibrium. The dual aspect concept is essential for accurate financial reporting and allows businesses to track their assets, liabilities, and equity in a structured and reliable manner. It helps ensure the integrity and completeness of financial information.

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Factory overheads are also known as indirect cost. This term refers to the expenses incurred in a factory that cannot be directly attributed to the production of a specific product or service. These costs include items such as factory rent, utilities, depreciation of factory equipment, and indirect labor costs. Unlike direct manufacturing expenses, which are directly tied to the production process, factory overheads contribute to the overall manufacturing process but are not directly traceable to a specific product.

Which of the following is charged to trading account?

Answer Details

A trading account is a financial statement that shows the profit or loss of a business through its trading activities. It includes all the revenues and expenses directly related to the buying and selling of goods. Out of the options provided, the expenses that are charged to the trading account are: 1. Carriage Inwards: Carriage inwards refers to the transportation costs incurred in bringing goods into the business. It can include expenses such as freight charges, import duties, and handling fees. These expenses are directly related to the purchase of goods and are considered a part of the cost of inventory. Hence, carriage inwards is charged to the trading account. 2. Carriage Outwards: Carriage outwards refers to the transportation costs incurred in delivering goods from the business to the customers. It includes expenses such as delivery charges, packaging costs, and shipping fees. Carriage outwards is not directly related to the purchase of goods but is rather an expense incurred in selling them. Therefore, carriage outwards is not charged to the trading account. 3. Rent: Rent refers to the cost of occupying a property for business purposes. Rent is not directly related to the buying and selling of goods, but rather to the use of the premises where the business operates. Hence, rent is not charged to the trading account. 4. Discount Allowed: Discount allowed represents the reduction in the selling price of goods given to customers as an incentive or reward. It is a reduction in revenue and does not directly relate to the cost of inventory or the buying and selling of goods. Therefore, discount allowed is not charged to the trading account. In summary, the expenses that are charged to the trading account are carriage inwards. Rent, discount allowed, and carriage outwards are not charged to the trading account as they are not directly related to the buying and selling of goods.

Which of the following is found on the credit side of a profit and loss account?

Answer Details

On the credit side of a profit and loss account, we can find items that generate income or gains for a business. Let's discuss each option and determine whether it belongs on the credit side or not. - **Advertising:** Advertising expenses are costs incurred to promote products or services. These expenses reduce a company's income or profits and are recorded on the debit side of the profit and loss account. Therefore, advertising does not belong on the credit side. - **Dividend received:** Dividends received are income earned by a company from its investments in other companies. Dividend income increases a company's overall income or profits and is recorded on the credit side of the profit and loss account. So, dividends received are found on the credit side. - **Wages and salaries:** Wages and salaries represent the compensation paid to employees for their work. These expenses are considered as costs incurred to generate revenue and are recorded on the debit side of the profit and loss account. Therefore, wages and salaries do not belong on the credit side. - **Bank charges:** Bank charges are fees or costs that a company incurs for various banking services, such as transaction fees, account maintenance fees, etc. These charges reduce a company's income or profits and are recorded on the debit side of the profit and loss account. Therefore, bank charges do not belong on the credit side. In conclusion, out of the given options, only **dividend received** will be found on the credit side of a profit and loss account.

The document which is legal charter of a company that defines the limits of a company's field of operation is known as

Answer Details

The document that serves as the legal charter of a company and defines the boundaries of its operations is known as the memorandum of association. This document outlines the company's objectives, activities, and powers, as well as its relationship with shareholders and the outside world. It acts as a guidebook for the company's existence and sets the rules and regulations by which the company must abide. In simpler terms, the memorandum of association is like the Constitution of a country, as it establishes the framework and scope within which the company operates.

The journal has the following headings except

Answer Details

A journal is a book of original entry where all the financial transactions of a business are recorded in a chronological order. It serves as a primary record-keeping tool for accounting purposes. The main purpose of a journal is to provide a detailed record of each transaction that occurs in a business. This allows for accurate and transparent financial reporting and analysis. The journal typically has several headings to organize the information recorded. These headings include the date, debit, credit, and discount. - The "date" heading is used to record the date on which the transaction occurred. This is important for reference and to maintain a chronological order of the transactions. - The "debit" heading is used to record the amount of money or value that is going out of the business due to the transaction. This could include expenses, assets being sold, or liabilities being paid off. - The "credit" heading is used to record the amount of money or value that is coming into the business due to the transaction. This could include revenue, loans, or other sources of income. - Finally, the "discount" heading is used to record any discounts given or received during the transaction. Discounts are often given to customers as an incentive or to settle outstanding debts. Therefore, based on the given options, the heading that would not typically be found in a journal is "discount." This is because the journal mainly focuses on recording and summarizing financial transactions, and discounts are not directly related to the core financial operations of a business.

When the goods are sold on credit to a buyer, the account receivable account will be

Answer Details

When the goods are sold on credit to a buyer, the account receivable account debits, increasing the company's assets as the amount is receivable from the third party. The corresponding credit will be in the sales account, increasing the company's revenue.

In the absence of a partnership agreement, a loan given to the partnership by a partner attracts interest of

Answer Details

Where there is no agreement betwen the partners, the following must applied:
- there is no interest on capital
- no salary for partners acting in the business
- no interest to be charged on drawings
- profit and loss are to be shared equally
- 5% interest a year on loans made by partners in excess of the agreed capitals
- no partners may introduce a new person without the consent of all existing partners

Dairo and Segun are in partnership sharing profits and losses in the ratio 2:3 respectively. The information below relates to their business for the year ended 31st December, 2018.
 

- Interest on drawings 10%

- Interest on capital 5%

- Profit for the year ₦36,000

- Salary: Segun ₦10,000

The interest on Dairo's drawings is

Answer Details

To calculate the interest on Dairo's drawings, we need to find out the total drawings made by Dairo during the year. Dairo's drawings: ₦12,000 Now, let's calculate the interest on Dairo's drawings using the formula: Interest on Drawings = Drawings * Rate of Interest Given: Rate of Interest = 10% Interest on Dairo's drawings = ₦12,000 * 10% = ₦1,200 Therefore, the interest on Dairo's drawings is ₦1,200.

The short term solvency of a company is determined with ------- ratio

Answer Details

The short term solvency of a company is determined using the current ratio. The current ratio is a financial ratio that measures a company's ability to pay off its short-term liabilities (debts due within one year) with its short-term assets (assets that can be converted into cash within one year).
To calculate the current ratio, you divide a company's current assets (such as cash, inventory, and accounts receivable) by its current liabilities (such as accounts payable and short-term loans). The formula is:
Current Ratio = Current Assets / Current Liabilities
The current ratio provides valuable insight into a company's ability to meet its short-term financial obligations. A ratio higher than 1 indicates that the company has enough current assets to cover its current liabilities. This generally indicates good short-term solvency.
For example, if a company has current assets of $100,000 and current liabilities of $50,000, its current ratio would be 2. This means that the company has twice as many current assets as current liabilities, which is generally a good sign.
On the other hand, a current ratio lower than 1 implies that the company may have trouble paying off its short-term debts. This could indicate potential financial strain or difficulty in managing short-term liquidity.
Overall, the current ratio helps assess a company's ability to meet its short-term obligations. It provides a simple and comprehensible way to evaluate a company's short-term solvency by comparing its current assets to its current liabilities.

Subscription in advance is treated in the balance sheet as a

Answer Details

Subscription in advance is treated in the balance sheet as a current liability.
This is because subscription in advance represents money that has been paid by customers for products or services that will be delivered or rendered at a future date. Since the provision of these products or services has not yet occurred, the company has an obligation to fulfill this commitment in the future.
As a current liability, subscription in advance is considered a short-term obligation that is expected to be settled within the next operating cycle, typically within one year. It is categorized as a liability because the company owes a future performance to its customers.
On the balance sheet, current liabilities are listed under the liabilities section and represent obligations that are expected to be settled in the near future using current assets or by creating new liabilities. Examples of other current liabilities include accounts payable, accrued expenses, and short-term loans.
It is important for companies to accurately present subscription in advance as a current liability on the balance sheet, as it reflects the company's financial obligations and helps provide a clearer picture of its overall financial health and future cash flow obligations.