Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FA – FIA FFA › Prepayment
- This topic has 6 replies, 4 voices, and was last updated 10 years ago by Jack.
- AuthorPosts
- March 3, 2014 at 7:52 am #161313
When A makes prepayment for rent to B, A records it as follows:
Dr Expence Dr Prepayment
Cr Cash, Cr ExpenceBut i ask you, how B records that prepayment amount which is prepaid to him in his accounting?
March 3, 2014 at 9:36 am #161318Hi, when B receives the prepayment, it is considered prepaid income (unearned revenue) to them. Its nature is LIABILITY.
The transaction will be recorded in B books as follow:
1. When receive the prepayment:
Dr. Cash/ bank
CR. Income
2. Income recorded, not incurred until next year:
Dr. Income
Cr. Prepaid Income (liability)Hope this helps.
March 3, 2014 at 10:06 am #161320thx Ruby..
March 3, 2014 at 5:13 pm #161360Ruby is correct 🙂
March 6, 2014 at 9:23 am #161604you removed my post but i was correct.
Accrued Interest = A term used to describe an accrual accounting method when interest that is either payable or receivable has been recognized, but not yet paid or received. Accrued interest occurs as a result of the difference in timing of cash flows and the measurement of these cash flows.
so the interest would have been an accrual at 31 Dec
March 6, 2014 at 10:42 am #161615No!
Firstly I did not remove any post.
Secondly, in an exam you must refer to it as accrued income or accrued expense. (Interest, for example, could be either because we might be paying interest or receiving interest)
Thirdly, the word accruals on its own always means an accrued expense.
The definition you quoted does not even mention the word accruals (accrual accounting is mentioned but accrual accounting is an expression covering much more than just recording accrued income and accrued expenses).
March 6, 2014 at 11:10 am #161617thanks for this John! i was about to rip the book up but
you didn’t remove any post but the entire topic 🙂 it was a mess anyway so i don’t mind - AuthorPosts
- The topic ‘Prepayment’ is closed to new replies.