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Rent prepaid

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FA – FIA FFA › Rent prepaid

  • This topic has 3 replies, 2 voices, and was last updated 2 years ago by John Moffat.
Viewing 4 posts - 1 through 4 (of 4 total)
  • Author
    Posts
  • October 27, 2022 at 5:22 pm #670139
    Sacca22
    Participant
    • Topics: 51
    • Replies: 59
    • ☆☆

    A company has prepared draft accounts for the year ended 31 March 20X9 incorporating the managing director’s bonus of 4% of net profit.

    It has now been discovered that the draft accounts omitted trade discounts allowed to customers of $100,
    cash discounts allowed from suppliers of $400 and a rent prepayment of $200

    ————————————

    Why is rent prepaid added as an adjustment to profit? It is not an expense that is incurred for that year?

    October 27, 2022 at 6:04 pm #670146
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54668
    • ☆☆☆☆☆

    If they have prepaid rent then the amount prepaid is not an expense of this year (it is an expense of next year).

    Therefore this years expense is lower by the amount prepaid, which means that the profit is higher.

    October 27, 2022 at 7:20 pm #670152
    Sacca22
    Participant
    • Topics: 51
    • Replies: 59
    • ☆☆

    Ah ok! So the question is actually saying that the adjustment for rent prepayment was omitted and that amount was left in the expense account so we would need to remove it.

    Thank you for clarifying!!!

    October 28, 2022 at 8:07 am #670176
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54668
    • ☆☆☆☆☆

    That is correct 🙂

  • Author
    Posts
Viewing 4 posts - 1 through 4 (of 4 total)
  • The topic ‘Rent prepaid’ is closed to new replies.

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