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John,
This is a general question but I can ask specifically with question 10.2 of the BPP revision kit
I understand the logic behind the answer, but what I am getting hung up on is what I think is “double counting” for lack of a better phrase.
So we calculate the actual expense for the year till 31 Jan 20X3, which includes the month of Jan which we pay in April. So the expense is 100,000 with that payment, but we also account for the accrual of 10,000 because we hadn’t paid for the month of Jan by year end. Wouldn’t that be overstating the expenses by 10,000 since we already account for the Jan payment when we calculate the year’s worth of rent? In other words, why wouldn’t expenses be $90,000 + accrual of $10,000I hope my question makes sense. Maybe I’ve been doing problems for a little too long and overthinking, thus confusing myself, but could you explain it to me?
Your help is as always much appreciated.
Rachel
The expense from 1 Feb 20X2 to 30 Sep X2 (8 months) is 8/12 x 90,000 = 60,000
The expense from 1 Oct X2 to 31 Jan X3 (4 months) is 4/12 x 120,000 = 40,000
Therefore the total expense is 100,000 (and this already includes the accrual – it includes the expense for January even though it has not yet been paid).
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