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

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  3. With regards to the last part of lecture what if the estimate was out by significant amount and not by 拢10 or if it has material impact on last year books . What will be the treatment. Please reflect some thought on this, will be quite helpful for practical purpose.
    Thanks.

  4. How do we deal with the issue where the actual invoice is different to the accrual estimate? Lets say it was 拢1000 (rather than 950).

    Is the 50 extra accounted for in the current year, and the accruals 950 dealt with as per the lecture?

    Many thanks

  5. Sir, since last year (2001) the balance of the telephone expense was 1850 usd in the T account, but this year (2002) you mentioned the balance for the telephone expense from last year is zero when you created the T account for telephone expense. May you explain and thankx in advance for your reply.

  9. 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!

  11. 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

  12. 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 .

  13. 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.

  14. 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.

  15. 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.

  16. 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.

    • 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.

    • 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 馃檪 )

  17. 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 ?

  19. 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.

  20. 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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