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You are given the following extract from an electricity account for the year ended 30 June 20X7:
Electricity a/c
$ $
Balance b/f (standing charge) 74 Balance b/f (metred usage) 375
Bank 394
Bank 427
Bank 507
Bank 670
The last bill received and paid was for $670, comprising a standing charge of $180 for the three months to 31 August 20X7 and metered charges for the three months to 31 May 20X7. The charge for usage in June is expected to be $307, whilst the standing charge is to be increased to $240 per quarter on all successive bills.What is the charge for electricity in the profit or loss account for the year ended 30 June 20X7?
$1,577
$1,844
$1,884
$1,944answer given
The correct answer is C.Electricity a/c
$ $
Debits (per Q) 2,072 Credits (per Q) 375
Closing accrual 307 Profit or loss 1,884
Cl. prepayment (2/3 × $180) 120
2,379 2,379kindly explain the whole question sir as i can’t understand anything in this question except prepayment calculation
The total cash paid during the year was 394 + 427 + 507 + 670 = 1998.
In addition that had paid last year 74 which was relating to this year (a debit balance). They also owed at the end of last year 375. This will have been paid this year and so be part of the cash paid this year but related to last year.
That means that the payment for this year so far is 1998 + 74 – 375 = 1697.At the end of this year they still owe 307 for this year (the closing accrual) but they have prepaid the standing charge for July and August (2/3 x 180 = 120).
So the expense for this year is 1697 + 307 – 120 = 1884.
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