Good day sir, So i was practicing some questions regarding accruals and prepaymente from Kaplan and i cam accross the question and i dont understand how they got this answer and i was wondering if you can assist me with this.
Question is as follows: On the first day of month 1, a business had prepaid insurance of $10,000.00. On the first day of month 8, it paid in full, the annual insurance invoice of $36,000.00 to cover the following year.
The amount charged in the statement of profit or loss and the amount shown in the statement of financial positon at the year end is:
The answers given were as follows: A. $5000 $24000 B. $22,000 $23,000 C. $25,000 $21,000 D. $36,000 $15,000
For this example, while creating my T Account, I initially went ahead to DR accrual 950 and CR cash 950 straightaway (since it was an expense for last year and the bill was used last year) instead of DR accrual 950, CR telephone acct 950 then DR telephone 950 and CR cash 950. Although we both arrived at the same SOPL expense and accrual, there was a noticeable difference in our T Accounts as my total sum was 3550 while yours was 4500. I’ll kindly like to know if my T Account layout is also correct or if I should correct myself based on your layout
You can do what you suggest – no problem. The end result is the same and that is all that matters. Appreciate however that although you must understand double entry for the exam, you cannot be asked to actually write-up any t-accounts.
Hi, thanks for providing these lectures, I’m finding them excellent. The explanations are very clear. I want to know how accruals and prepayments are treated on an income a/c such as Rental Income from property. There are some questions relating to this in the Kaplan revision kit but I don’t see it covered here.
Hi So if we under estimated the accruals the difference goes to next years accounts eg 拢10 expense in your video. What if it was other way around we estimated too high? The actual bill was 拢940 instead of out estimate ? Would 拢10 go in other incomes after gross profit ?
Have a good day, sir. I have a question that if the Prepayments or Accruals guessed last year have a terrible deviation from the true number. As you said in the last part of the video, accounts can change the guessed number in the next year to correct the deviation. Is it legal? Thanks for your answer.
The treatment is certainly legal. (Why should the deviation contain illegal things – obviously if the company has done something illegal then that is wrong, but is nothing to do with accounting?)
Hello, I am student at University of Surrey. I am writing in order to express my overwhelming happiness that I found Opentuition.com It is really a game-changer for me in my studies on Financial Accounting. John Moffitt truly is a legend! I am watching every lecture with pleasure. He describes everything so understandably and clearly that sometimes I just smile while listening to him. I wish I had a lecturer like him! Best regards.
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Good day sir,
So i was practicing some questions regarding accruals and prepaymente from Kaplan and i cam accross the question and i dont understand how they got this answer and i was wondering if you can assist me with this.
Question is as follows:
On the first day of month 1, a business had prepaid insurance of $10,000.00. On the first day of month 8, it paid in full, the annual insurance invoice of $36,000.00 to cover the following year.
The amount charged in the statement of profit or loss and the amount shown in the statement of financial positon at the year end is:
The answers given were as follows:
A. $5000 $24000
B. $22,000 $23,000
C. $25,000 $21,000
D. $36,000 $15,000
Any form of help would be greatly appriciated.
Please ask this kind of question in the Ask the Tutor Forum and not as a comment on a lecture.
Good evening sir,
For this example, while creating my T Account, I initially went ahead to DR accrual 950 and CR cash 950 straightaway (since it was an expense for last year and the bill was used last year) instead of DR accrual 950, CR telephone acct 950 then DR telephone 950 and CR cash 950. Although we both arrived at the same SOPL expense and accrual, there was a noticeable difference in our T Accounts as my total sum was 3550 while yours was 4500.
I’ll kindly like to know if my T Account layout is also correct or if I should correct myself based on your layout
Thank you so much for this platform
You can do what you suggest – no problem. The end result is the same and that is all that matters.
Appreciate however that although you must understand double entry for the exam, you cannot be asked to actually write-up any t-accounts.
Hi sir, in the video @3:50 you said and i quote “i want the expense for this year and the 4500 included. That payment for three months of last year”.
I went through the entire lecture video, all 4 parts, understood everything except this one quote.
Could you please go through that part of the video and help me understand what you mean.
Thanks and kind regards.
Hi, thanks for providing these lectures, I’m finding them excellent. The explanations are very clear.
I want to know how accruals and prepayments are treated on an income a/c such as Rental Income from property. There are some questions relating to this in the Kaplan revision kit but I don’t see it covered here.
Hi
So if we under estimated the accruals the difference goes to next years accounts eg 拢10 expense in your video.
What if it was other way around we estimated too high? The actual bill was 拢940 instead of out estimate ? Would 拢10 go in other incomes after gross profit ?
No – it would be treated in exactly the same way but in reverse. It would simply mean that the expense this year would be $10 lower.
Thanks sir. Do prepayments exist in both the S.O.P.L & S.O.F.P or?
They only exixt in sofp
Correct (although they do need adjusting for to get the total expense in the SOPL)
Have a good day, sir. I have a question that if the Prepayments or Accruals guessed last year have a terrible deviation from the true number. As you said in the last part of the video, accounts can change the guessed number in the next year to correct the deviation. Is it legal? Thanks for your answer.
I mean that the deviation maybe contains illegal things….
The treatment is certainly legal. (Why should the deviation contain illegal things – obviously if the company has done something illegal then that is wrong, but is nothing to do with accounting?)
Hello,
I am student at University of Surrey.
I am writing in order to express my overwhelming happiness that I found Opentuition.com
It is really a game-changer for me in my studies on Financial Accounting.
John Moffitt truly is a legend! I am watching every lecture with pleasure. He describes everything so understandably and clearly that sometimes I just smile while listening to him.
I wish I had a lecturer like him!
Best regards.
Thank you very much for your comment 馃檪
good thing I didnt apply to surrey haha