Accruals and prepayments

Of the 1154880 cash received during the year, 50880 was rent that was owing to us at the end of last year (and so is not this years income and needs removing). At the end of this year we are still owed 44160, so it is not included in the cash but is this years income and so needs to be added.

At the end of last year we had received 68880 in advance. So the cash was received last year (and is therefore not part of this years total) but it is this years income and so needs adding.
At the end of this year we have received 74880 in advance. So this is included in the cash received but it is not this years income – it is next years income. So it needs removing.

So….the income for this year is 1154880 – 50880 + 44160 + 68880 – 74880

I did see your calculation which were as follows:-

The cash paid during September was 95+245. However 95 was owing from last month and so only 245 relates to this month.
At the start of September they had prepaid 80 insurance. At the end of September they will only have prepaid 3 months – 1 month insurance was ‘used’ in September and for 1 month it is 80/4 = 20.

So the total expense is 245 + 20 = 265

My question is that what happens to $120 which are outstanding in this period?

Thanks a lot Sir
You have really helped me from the day I joined your community.

Hello Sir , can u please explain that what is under accrued??? lets say for example , at year end 2003 tony had accrued $240 in respect of light and heat expense for the quarter ending 2003 31 Dec 2003. in january 2004 he discovered that he had under accrued by $10.

so for the above question is it gona be 240+10=250 on credit side of (light and heat expense T a/c) or 250 on debit side and 240 on credit side?????

thx sir
i will watch the lecture now .

Ya sure .. Thanks … Mr Moffat You are doing a great job. Hat’s off to you sir….

Hello sir. Can you please help me with this question.

A company’s telephone bill consists of two elements. One is quarterly rental charge, payable in advance; the other is quarterly charge for calls made, payable in arrears. At 1 april 2009, the previous bill dated 1 march had included line rental of $90. Estimated call charges during march 2009 were $80.

During the following 12 months, bills totalling $2,145 were received on 1 june, 1 september, 1 december 20X9 and 1 march 20Y0, each containing rental of $90 as well call charges. Estimated call charges for march 20Y0 were $120.

What is the amount to be charged to the statement of profit or loss for the year ended 31 march 20Y0?
A. $2,185
B. $2,205
C. $2,155
D. $2,215

Joanna has prepared her draft accounts for the year ended 30 april 2008, and needs to adjust them for the following items:
1) Rent od $10,500 was paid and recorded on 2 january 2007 for the period 1 january to 31 december 2007. The landlord had advised that the annual rent for 2008 will be $12,000 although it has not been invoiced or paid yet.

2) Property and contents insurance is paid annually on 1 march. Joanna paid and recorded $6,000 on 1 march 2008 for the year from 1 march 2008 to 28 february 2009.

What should the net effect on profit be in the draft accounts for the year ended 30 april 2008 of adjusting for the above items?

A. $1,000 decrease
B. $1.500 increase
C. $1,000 increase
D. $1,500 decrease

I’m sorry sir. Actually it’s my first time asking you any question. But it won’t happen in the future.
I’m confused about why did he use the value $12000 instead of using $10,000? And how should i deal with the situation in (1).
Number (2) is understandable.

In the Joanna question, we need the rent expense for the period 1 May 2007 to 30 April 2008.

From 1 May 2007 to 31 December 2007 is 8 months and is part of the payment of $10,500. So the rent expense for the 8 months is 8/12 x 10,500 = 7,000.
From 1 January 2008 to 30 April 2008 is 4 months and is part of the amount we are going to be charged of $12,000. So the rent expense for these 4 months is 4/12 x 12,000 = 4,000.

So the total expense for our year is 11,000.

(Are you sure the question says that the first payment mentioned was paid and recorded on 2 January 2007 and not 2 January 2008? If you have typed the right date, then the adjustment is the whole 11,000. If it was 2 January 2008, then the adjustment is just the difference of 500 (11,000 – 10,500). If you have typed the correct date, then I think it must be a typing error in the question you have.

You really should watch the free lectures on accruals and prepayments.

(Sorry telling you that I had told you before – there must be more than one person using the name “zohaib” 🙂 )

In that case I think it is a typing error in the book that you are using 🙂