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Accruals and Prepayments (part d) – ACCA Financial Accounting (FA) lectures

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Comments

  1. Anthonia says

    January 24, 2021 at 5:03 pm

    Another great lecture! Thanks so much! I wish I had started using these lectures last year; so helpful! Thank you John!

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    • John Moffat says

      January 25, 2021 at 9:00 am

      Thank you for your comment 🙂

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  2. Ocean2k20 says

    January 9, 2021 at 4:01 pm

    Thank you for your video, right at the end you said if we had received the bill, we know the exact amount for the expense. This is still an accrual because we have not paid the invoice, is that correct? Is it correct to say not all accruals are estimates?
    Thanks!

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    • John Moffat says

      January 10, 2021 at 8:59 am

      That is correct. If we know the exact amount then we use it. If not then we estimate.

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  3. Asif110 says

    September 29, 2020 at 4:34 pm

    Hello Sir, in the lectures do you cover Accrual Income and Prepayment Income and their double entry with Income Ledger Accounts, instead of Expense ?

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    • John Moffat says

      September 29, 2020 at 5:38 pm

      No, because the logic is exactly the same (and, of course, the actual double entries are not needed for the exam).

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      • Asif110 says

        September 29, 2020 at 6:13 pm

        It would indeed be a good revision for beginners.
        Hope you do consider including it in the future !

  4. shakir7385 says

    September 6, 2020 at 11:24 am

    Hi Sir,

    Thank you for your free lectures. Indeed we all are benefiting from it.
    I have one short query regarding the telephone expense of 950 which relates to previous year. Since we already booked this 950 in previous year expense and also created accrual account with the same amount. So in subsequent year, why can’t we just Debit the accrual with 950 and credit cash with 950. Why we are required to reverse the accrual.

    Best Regards,
    Shakir

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    • John Moffat says

      September 6, 2020 at 4:44 pm

      Although the end result will indeed be the same, it is the accountant who will deal with the year end adjustments including accruals. The bookkeeper records the day-to-day transactions and is taught that when paying electricity we credit cash and debit the expense account.

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      • shakir7385 says

        September 7, 2020 at 3:42 pm

        Thank you John.

      • John Moffat says

        September 7, 2020 at 4:49 pm

        You are welcome 🙂

  5. tkhue3296 says

    August 18, 2020 at 2:55 pm

    Key concepts i got :

    1. Prepayment is the money we paid advance
    2. Accruals is the money we haven’t paid
    3. Everything just remain unchanged if the actual bills is more than the estimation last year ,
    because balance of this year act as a auto correction for the last year .

    Thanks John .

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    • John Moffat says

      August 18, 2020 at 3:59 pm

      Thank you for your comment 🙂

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  6. zaynahmohammed24 says

    June 27, 2020 at 5:26 pm

    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.

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    • John Moffat says

      June 28, 2020 at 9:33 am

      Please ask this kind of question in the Ask the Tutor Forum and not as a comment on a lecture.

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  7. nichoku says

    June 1, 2020 at 2:02 am

    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

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    • John Moffat says

      June 1, 2020 at 9:58 am

      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.

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  8. surajnagesh says

    February 28, 2020 at 11:18 am

    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.

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  9. Evie2468 says

    February 12, 2020 at 7:33 pm

    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.

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    • deviant88 says

      September 27, 2020 at 2:26 pm

      Same way as it is applied for expenses.

      Accrual increases balance of account as it relates to current year while prepayments should be deducted as they related to future period.

      Only thing since income has credit balance you need to credit income (SOPL)and debit accrued income (will be reflected in SOFP as current asset).

      And reverse for prepayments it will be considered as liability in SOFP and rental income will be reduced by debiting it as it income received in advance. Something not related to current year.

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    • John Moffat says

      September 27, 2020 at 3:52 pm

      Thank you for providing the answer. However please do not do it in general because this area is for comments on the lectures. Students should be encouraged to ask any questions in the Ask the Tutor Forums where they will receive a reply within 24 hours, or in the other Forum for each paper (and please do help people in the non-Ask the Tutor Forum 🙂 )

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      • deviant88 says

        September 30, 2020 at 12:31 pm

        As you say, Sir. I won’t henceforth. I do agree these questions need to be asked in forum.?

      • John Moffat says

        September 30, 2020 at 4:29 pm

        Thanks a lot 🙂

  10. skhan10 says

    January 17, 2020 at 3:30 pm

    Hi
    So if we under estimated the accruals the difference goes to next years accounts eg £10 expense in your video.
    What if it was other way around we estimated too high? The actual bill was £940 instead of out estimate ? Would £10 go in other incomes after gross profit ?

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    • John Moffat says

      January 17, 2020 at 4:22 pm

      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.

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  11. damulirahenry says

    August 16, 2019 at 12:31 pm

    Thanks sir. Do prepayments exist in both the S.O.P.L & S.O.F.P or?

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    • tayyab12323 says

      May 18, 2020 at 5:58 am

      They only exixt in sofp

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      • John Moffat says

        May 18, 2020 at 7:32 am

        Correct (although they do need adjusting for to get the total expense in the SOPL)

  12. abc528 says

    August 2, 2019 at 5:37 pm

    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.

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    • abc528 says

      August 2, 2019 at 5:44 pm

      I mean that the deviation maybe contains illegal things….

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      • John Moffat says

        August 2, 2019 at 7:48 pm

        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?)

  13. lasttride says

    November 19, 2018 at 4:51 pm

    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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    • John Moffat says

      November 20, 2018 at 7:17 am

      Thank you very much for your comment 🙂

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    • kingkongsajang says

      March 24, 2019 at 11:25 am

      good thing I didnt apply to surrey haha

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