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Hello there
So I went through the BPP kit today and I came across a question that was like this
The year end of M Co is 30 November 20X0. The company pays for its gas by a standing order of $600 per month. On 1 December 20W9, the statement from the gas supplier showed that M Co had overpaid by $200. M Co received gas bills for the four quarters commencing on 1 December 20W9 and ending on 30 November 20X0 for $1,300, $1,400, $2,100 and $2,000 respectively.
Which of the following is the correct charge for gas in M Inc’s statement of profit or loss for the year ended 30 November 20X0?
This is how I did the method
So I realized the company defintely got a total reciepts of 6800 for the year
But then I also noted down that there was an opening prepayment of 200(the one that said overpaid)So then the total must be 6800 + 200= 7000
I didn’t know what do with the standing order of 600 so I ignored that
The correct answer was apparently 6800
I don’t understand why they haven’t taken the 200 into inclusion and I don’t understand what to do what to do with the standing order of 600 per month either
The company has not had receipts of $6.800, they are paying for gas not receiving money.
The total of the bills received is $6,800 and so this is the cost of the gas used during the year and is therefore the total expense in the SOPL.
This is not the same as the cash paid (they are paying 600 per month) but that is not relevant because the question simply asks for the expense for the year.
Oh so basically the bills recieved is a different thing compared to what they paid I suppose
The bills recieved is the stuff that they have to charge for the profit and loss (this is the answer which we usually try to find in the credit side of the expense account..but in this case they have given our answer straight away so I suppose we don’t need to actually use an expense account and find what is charged for profit and loss)
Whilst on the other hand I assume that the 600 per month is basically what they have actually paid in cash payments( usually recorded as the debit in the expense acount)
I just need to verify whether my thought process about this question is correct
Please correct me if I am wrong
Thank you
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