- This topic has 3 replies, 2 voices, and was last updated 3 years ago by
.
- Posts
- Topics: 65
- Replies: 117
- ☆☆
Joanna has prepared her draft financial statements for the year ended 30 April 20X8, and needs to adjust them for the following items:
1 Rent of $10,500 was paid and recorded on 2 January 20×7 for the period 1 January to 31 December 20X7. The landlord has advised that the annual rent for 20X8 will be $12,000 although it has not been invoiced or paid yet.
Property and contents insurance is paid annually on 1 March. Joanna paid and recorded $6,000 en 1 March 20X8 for the year from 1 March 20X8 to 28 February 20X9.
What should the net effect on profit be in the draft financial statements for the year ended 30 April 20X8 of adjusting for the above items?
A $1,000 decrease
B$1,500 increase
C$1,000 increase
D$1,500 decrease
Answer c 1000
1 is accrual at the end I.e 12000 ×4÷12 =4000And 2 is advance at the end 6000÷12×10=5000
Since we add accrual at the end I.e outstanding at the end and advance at the end we minus thats how we do it in p and l
So answer should be 4000-5000= -1000 ( decrease )No.
They have not recorded the accrual, and when they do the expense will increase and therefore the profit will decrease by 4,000.
They have not recorded the prepayment, and when they do the expense will decrease and therefore the profit will increase by 5,000.
So the net effect on the SOPL is that the profit will increase by 1,000.
- Topics: 65
- Replies: 117
- ☆☆
Thank u so much sir may god bless u
- The topic ‘Accruals and prepayment’ is closed to new replies.