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- May 8, 2018 at 2:41 pm #450613
HI John
I have watched all of your videos and find them to be excellent. I am ignoring how we operate in work and just following the exam practice questions. What has thrown me with this question is how the prepayment account would look, so am i right in thinking that it would be….
01/09/0X Credit prepayment 80
01/09/0X Debit Expense 8030/09/0X Debit prepayment 60
30/09/0X credit expense 60It is the wording of the questions that can confuse me at times as i understand the concept but with this question it is saying that from the 1 September i paid £80 expense in advance and the answer is in the back of the exam kit, so i looked and the opening prepaid expense on the expense T Account is a debit of 80. What then threw me was what the entry on the prepaid T account would be becasue if i have a debit on the expense account then this must mean that i have done a credit on the prepaid account. I was confused as to why i would close off the prepayment when i know that i sill have £60 to prepay. So just to make sure i have grasped this completely but would my prepayment account be as follows:
Cr PP 80
Cr expense 80Dr pp 60
Cr expense 60, which is the c/f balance at the end of Sept and will become the b/f balance at the start of October.The example is only using the month of September which again threw me. I find your videos are really easy to follow as you expalin things so well but the examples in the kit can be a bit tricky.
So for the c/f of £60 on the T account i need to just remember that the prepayment account will have first be debited with 60 and this c/f on the cr side of the expense is the other side of this entry. It did not give me the c/f figures you see as the example just said that on the 01 September £80 was paid in advance for 4 months, so i know that £20 needs to be posted to the SOPL at the end of each month. It also gave me what had been spent during the year and of course the accruals. That opening prepaid balance confused me as i couldn’t get my head round why the prepayment had been credited and closed off when i still had £60 prepayment left on the prepayment account. Sorry to waffle on but my exam is June and i need to make sure i fully understand.
Is this how my prepayment account would look then as below is the prepayment account how i think it would look following your advice. I would have done it as a t account but it goes all funny when posted so i’ve done the entries under one another as opposed to side by side.
01/09/0X Cr expense £80
30/09/0X Dr expense £6001/10/0X Cr expense £60
31/10/0X Dr expense £4001/11/0X Cr expense £40
30/11/0X Dr expense £2001/12/0X Cr expense £20 account is now clear and all expenses for the 4 months have been transferred to the SOPL and removed from SOFP.
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