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SSC Financial and Cost Accounting P-1 QUESTION #6110
Question 1

A business paid $5,750 for advertising; $500 relates to next year (prepayment). How does correct treatment affect the financial statements compared to leaving it untreated?

OptionProfit for the YearCurrent Assets
ADecreaseDecrease
BDecreaseIncrease
CIncreaseDecrease
DIncreaseIncrease
  • Option A
  • Option B
  • Option C
  • Option D✔️
Correct Answer Explanation

Option D is correct.

  • Profit increases: Removing $500 from advertising expense reduces expenses → profit rises by $500.
  • Current assets increase: The $500 prepayment is recorded as a current asset on the SFP.