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Efa pays subscriptions to belong to a professional organisation. The subscriptions are charged for the period 1 January – 31 December. Efa’s business year end is 30 September. Subscriptions for the last two years are as follows:
Year ended 31 December $
20X4 480
20X5 540
What should be the year end accounting entry for 20X5 to ensure the correct amount for subscriptions is included in the statement of profit or loss?A.DR Subscription expenses $135 CR Accruals $135
B.DR Prepayments $135 CR Subscription expenses $135
C.DR Subscription expenses $540 CR Bank $540
D.DR Subscription expenses $120 CR Prepayments $120The correct answer is B.
Nowhere, in the question does it say whether Efa made the payments in advance or in arrears. If nothing is given in the question, do we always assume that the payment must have been made in advance?
Do we get questions like this in the Main acca exam also?
You do get questions like this. Subscriptions in practice are always paid in advance (think about your ACCA subscription each year) and you will be expected to assume this.
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