Preliminary expenses is an example of?

A. fictitious assets
B. liquid assets
C. wasting assets
D. tangible assets

Correct Answer:

Option A – fictitious assets

Explanation

preliminary expenses are just like other assets but are unrealizable.

Preliminary expenses are those expenses that are incurred before the establishment of a corporation like registration expenses. In this case, the company doesn’t know where to classify the expense so that’s why we classify them as fictitious or fake assets. They are just there in the balance sheet to be written off or deducted from net profit. Alternatively. Fictitious assets are expenses that are not found in P&L account but tend to reduce the cash in hand of the business so, in order to make the balance sheet balance, we tend to create room for this type of asset under current asset in order to make the balance sheet balance and to be written off against profit which tends to reduce the liability and asset side of the balance sheet making it balance.