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At 1 sep, the motor expenses account showed 4 months insurance prepaid of 80 and fuel cost of 95. during september the outstanding fuel bill was paid, plus further bills of 245. at september 30 there was a further outstanding fuel bill of 120.
what was the expense?in the solution why does the debit side show 120? and credit side show ’60’? since it is outstanding shouldnt it have a credit balance? and where does the figure 60 come from?
You have not said where the question has come from and so without more details I cannot. explain the 60.
As far as the 120 is concerned, the debit the expense account and credit the accruals account.
This is all explained in my free lectures on accruals and prepayments.
I do not have the Kaplan Kit – only the BPP Revision Kit.
However I realise what the 60 is.
At the start of September they have prepaid 80 and this was for four months. At the end of September (i.e. after one month) they will then still have prepaid 3 months.
So the amount of the prepayment at the end of September is 3/4 x 80 = 60.
As always with a prepayment, debit prepayments and credit the expense account.
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