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accruals

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FA – FIA FFA › accruals

  • This topic has 6 replies, 2 voices, and was last updated 9 years ago by John Moffat.
Viewing 7 posts - 1 through 7 (of 7 total)
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    Posts
  • August 18, 2015 at 7:18 pm #267674
    mp-open
    Member
    • Topics: 96
    • Replies: 167
    • ☆☆☆

    Hallo,

    I don’t understand the solution of the following example, concerning the 30th November 2010 accrual of 600, here is the example and the solution:

    Example:
    The year end of M Inc is 30 November 2010. The company pays for its gas by a standing order of $600 per month. On 1 December 2009, the statement from the gas supplier showed that M Inc had overpaid by $200. M Inc received gas bills for the four quarters commencing on 1 December 2009 and ending on 30 November 2010 for $1,300, $1,400, $2,100 and $2,000 respectively. Which of the following is the correct charge for gas in M Inc’s statement of comprehensive income for the year ended 30 November 2010?

    Solution:
    Gas supplier a/c
    Dr
    Bal. b/f 200
    Bank 600*12=7200

    Cr
    28/2 – 1300
    31/5 – 1400
    31/8 – 2100
    30/11 – 2000
    30/11 – bal c/d 600

    1st Q – if the year end is 30/11/10 – we paid during the yr 1300+1400+2100+2000=6800, but we have to pay 600*12= 7200, so we have outstanding/accrued amount to pay 7200-6800= 400, so, how do they decide that the accrual has to be 600, not 400, is it only to make it equal with the Dr side because of the overpayment during the year in December, or it is something hidden in the text, that I don’t see, as long as the year end is 30/11/10 and we have to pay only 400 more, not 400+200=600?

    2nd Q- if this is a Gas supplier a/c – isn’t that an expense a/c, where the payments should be on the Dr side, why here they are on the Cr side, what/which kind of a/c is this, it looks to me, like a/cs payble, but this is an expense a/c not a Balance sheet a/c, so why the payments are on the Cr side?

    Thank you!

    August 19, 2015 at 8:20 am #267721
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54705
    • ☆☆☆☆☆

    The total expense is the total of all the bills that have been received, which is 6,800.

    That is all that the question asks for, and so there is no need for t-accounts or anything else!!

    However, the total cash paid is 12 x 600 = 7,200. Also, there was already 200 overpaid at the start of the year – so a total of 7,400.

    Therefore at the end of the year the overpayment is 7,400 – 6,800 = 600.

    The t-account that you have written out is not the expense account – it is the ‘gas supplier account’ which is the payable account for the gas supplier.
    When a bill is received the entry is Dr expense a/c and Cr supplier a/c

    The final balance of 600 is not an accrual. It carries forward to result in a debit balance – a debit balance is correct because the supplier owes us 600 (the amount overpaid).

    Why on earth your book prepared that t-account, I have no idea. It is not needed to answer the question and is completely irrelevant for the real exam where it cannot be asked for.

    August 19, 2015 at 9:23 am #267733
    mp-open
    Member
    • Topics: 96
    • Replies: 167
    • ☆☆☆

    Hallo,

    Thank you very much, I got it now, it’s rarely in the examples that we work with the supplie’r-payble individual a/c and was in confusion at first. I understood the carry over of the 600 as overpayment, and the actual amount paid because of the standing order – these two cleared the Q.

    Another Q- when receiving a supplier’s bill you say we Dr Expense, we Cr Supplier’s a/c,
    but when do we do Dr Expense, Cr Payables, what is the difference – that 1st we credit the individual a/c, and then the totals of the individual a/cs are transferred to the Payables, i.e. Payables ledger control a/c, but this would mean we never credit the paybles ledger control a/c from the beginning, the moment we received the bill, as most of the time when solving examples for F3 we work with the Payalbles control a/c by directly crediting it, not so much with crediting the individual a/cs, is this correct?

    Thank you!

    August 19, 2015 at 9:24 am #267734
    mp-open
    Member
    • Topics: 96
    • Replies: 167
    • ☆☆☆

    I forgot to say, the book is ACCA from 2010, maybe at the time the t-a/cs were still used.

    August 19, 2015 at 6:35 pm #267787
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54705
    • ☆☆☆☆☆

    What you wrote in your first email is correct.

    With regard to the exams, even in 2010 they did not ask questions that required you to write up t-accounts – all of the questions used to be multiple choice and all that was required was to choose the correct answer!!

    August 19, 2015 at 7:44 pm #267804
    mp-open
    Member
    • Topics: 96
    • Replies: 167
    • ☆☆☆

    Hallo,

    Nto get confused, when you say in your first email, which part exactly, not sure which one you refer to.

    The t-account, was given in the solution for illustration, the example didn’t require to write up a t-a/c, but I still wanted to explain it to myself.

    Thank you!

    August 20, 2015 at 6:54 am #267832
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54705
    • ☆☆☆☆☆

    I meant the first of your two responses. The only that starts “Thank you very much, I got it now….”

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