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Hallo,
In the following example:
The electricity account for the year ended 30 June 2011 was as follows:
Opening balance for electricity accrued at 1 July 2010 – 300
Payments made during the year
1 August 2010 for three months to 31 July 2010 – 600
1 November 2010 for three months to 31 October 2010 – 720
1 February 2011 for three months to 31 January 2011 – 900
30 June 2011 for three months to 30 April 2011 – 840and Solution:
Electriticity a/c:
Cr
Balance b/fwd 300
I & E account 3,320
Total 3620Dr
2010:
1 August Paid bank 600
1 November Paid bank 720
2011:
1 February Paid bank 900
30 June Paid bank 840
30 June Accrual c/d 2/3 of $840 = 560
Total 3620I have no clue why there is an adjustment for 840 two times.I don’t see anything about an amount for May and June 2011 mentioned in the example, at the same time they are accruing 2/3 of 840=560, why is that? The 840 is for Feb, March, April and no further info about May and June. How do I know that I have to accrue 2/3 of 840?
Thank you!
There is not an adjustment for 840 two times.
When they make the payment of 840 the entry is Cr Cash Dr Expense – this they have done.
At the end of the year they still owe for May and June 2011. They only way we can estimate the amount owing is to look at the latest bill received which was 840 for three months to April. Therefore all we can do to estimate the accrual is assume that it stays at the same rate of 840/3 per month.
Hallo,
Ok, I will know to use the last bill’s amount, wasn’t sure about it.
Thank you!
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