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January 12, 2022 at 8:10 am
In the notes related to Prepayments it says that the over-payment is recorded as prepayment and not as an account receivable. Why the comparison with an account receivable and not an account payable? Thank you.
John Moffat says
January 12, 2022 at 8:18 am
If we have paid more than we should have then the person to who we paid it effectively owes us the money back. That is why it is like a receivable. However they don’t actually pay it back to us – we just pay less the following year, which is why we show it as a prepayment (but just like receivables it is a current asset).
January 13, 2022 at 3:22 pm
Thank you very much! Great lecture and learning experience!
August 30, 2021 at 11:29 am
Thank you sir for the great lecture
I am a bit confused regarding Prepayments as current assets on SOFP, I assume the questions says Insurance companies owes money to us so thats why it is similar to account receivables but then why do we add it as an expense on SOPL, i mean why at SOFL it is not shown as liability
August 30, 2021 at 3:04 pm
The prepayment itself is not an expense. Insurance is an expense and if we have paid in advance then the amount paid in advance is not an expense of this period and reduces the expense for this period.
January 24, 2021 at 1:56 pm
Great lecture. Thank you so much!
January 24, 2021 at 3:07 pm
Thank you for your comment 🙂
October 20, 2020 at 4:28 pm
Hi John, as I understood Insurance expense each year was 2,000 and divide by 6 month that month each month 1,000 so why 800 six month?
September 18, 2020 at 12:49 pm
Thanks greatly for your contributions for the service, opentuition – saves people from being left behind.
I have three questions for this lecture:
1) If insurance was paid on 5th Jan to 30 June, insurance would become effective from 5th Jan. So why did you write 1st Jan – 30 June for 800 ? It wouldn’t be an expense for the days before 5th Jan, ie 1st to 4th Jan.
2) After you credited $1000 in Insurance Account and referenced it as Prepayment.
Then do we have to reference the balance $1800 as SOPL next to Balance Carried Down, or Balance B/Down ? In the previous lecture you did it next to Balance B/D. In this Lecture next to B/C.
3) For the first question extracts, can we just write the final answer down Expense – 1800 Prepayment – 1000. Or we need to insert and format all the headings .
September 18, 2020 at 2:04 pm
1) The question specifically said that the payment was for the 6 months to 30 June. Just because the bill wasn’t paid until 5 January doesn’t automatically mean that the insurance would not be effective until then. (I am sometimes a few days late in paying my insurance but I have been with the same company for a long time and they don’t mind – the policy still gives cover for the whole period.)
2) The balance does not appear in the SOPL – it appears in the SOFP as an asset. There is no need to label it (and it is irrelevant for the exam since you cannot be asked to produce any t-accounts even though you are expected to understand the entries).
3) Again, it is not really relevant for the exam. The exam is on computer and involves filling in blanks and ticking the correct answer from several choices (as in our tests at the end of each chapter).
September 18, 2020 at 3:25 pm
2) Yes indeed, 1000 Prepayment would go to SOFP. I was rather referring my question towards the 1800 next to which you wrote SOPL. Please kindly reply in relation to that.
September 18, 2020 at 3:32 pm
Earlier you would close the balance to zero, by crediting it against the Balance B/D and putting the SOPL reference there. From this lecture onwards, you do not close down the balance to zero, and put the SOPL reference directly next to the Balance C/D.
So does this indicate there is no formal procedure, and we may carry out the T account structure according to our convenience how ever we see fit. Or we must only put the reference of SOPL account next to the Balance B/D thereby closing the expense Account. And here you were just in a hurry and thus did not complete the full procedure like in the previous lecture ?
I just want to know for general knowledge purposes.
April 24, 2021 at 11:29 am
I think you’re confused! Watch the lecture again and try not to think too hard. John is a very good lecturer and explains things well. In my opinion, you’re being unfair!
June 8, 2021 at 12:23 pm
August 14, 2020 at 5:25 am
1 day 1 small step,
10 years a big gap .
Thanks for today haha.
May 12, 2020 at 8:45 pm
I hope you are keeping safe. At the end of the lecture , to remove the prepayment , do you not debit the prepayment account instead of crediting it, and then debit the SOPL ?
May 12, 2020 at 8:47 pm
sorry i worked it out, my apologies !
April 25, 2020 at 2:43 pm
Thank you sir
April 25, 2020 at 2:50 pm
You are welcome 🙂
April 15, 2020 at 9:40 pm
Thank you John
November 2, 2019 at 2:22 pm
It’s Really helpful for me thanks a lot sir
December 22, 2020 at 6:19 am
Thank you so so much sir
It is very helpful
March 14, 2019 at 9:08 am
You must ask this sort of question in the Ask the Tutor Forum, and not as a comment on a lecture.
March 13, 2019 at 9:15 pm
Need some help to understands accruals & prepayments fully.
question: A company received cash totalling 838600 during the year 31 December 2006.
figures for rent in advance and in arrears at the beginning and end of the year were:
31 December 2005 31 December 2006
Rent received in advance $102,600 $88,700
Rent in arrears (all subsequently received) $42,300 $48,400
What should appear in the company’s income statement for the year ended 31 December 2006 for rental income?
November 25, 2019 at 6:45 pm
The question is incomplete. This question is answered by a participant in the Open Tuition website. Please follow the link below; https://opentuition.com/topic/prepayment/#post-553741
November 26, 2019 at 9:29 am
The correct answer is $858600 that should be included in statement of profit or loss.
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