At 1 September, the motor expenses account showed 4 months’ insurance prepaid of $80
and fuel costs accrued of $95. During September, the outstanding fuel bill was paid, plus
further bills of $245. At 30 September there was a further outstanding fuel bill of $120.
What was the expense included in the statement of profit or loss for motor expenses for
September?
sir kindly explain solution of this question , i watched the lecture and understood but here in expense i am confused in this question, ,
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accruals
5y ago#1At the beginning of September they had prepaid 4 months insurance. So the expense for September is 1/4 x 80 = $20 (and at the end of September there is 3 months prepaid).
The expense for fuel is the 245 paid plus 120 outstanding = $365
So the total expense is $385.
why 95 is not subtracted ?
5y ago#3Because the question says that the outstanding bill (i.e. the accrual) was paid plus further bills of $245. The $245 does not therefore include the $95.
Hello sir.
So if accrual is paid in the outstanding, does not the following reverse entries take place? :
Dr Accrual (95)
Cr Expense (95)
So why 95 is not subtracted in the Expense Account ?
5y ago#5Yes (although producing a t-account in the exam is not needed and is wasting time), but read the question carefully - the $95 was paid and another $245 was paid as well.
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