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Hi, Sir i am writing to you for the first time.
My question is more of a practical nature than bookish knowledge, i am actually facing confusion with respect of Two different method of making ledger or T account under Accrual and Prepayment chapter.1.First method, is also defined in ur video lecture in which u make seperate account for expense and accurual eg seperate account for rent and seperate for rent payable.
2.Now, under many books including Kaplan they are not making a seperate account for accurual eg rent payable, instead they re making a Single account of rent (expense) and are calculating accured amount as Balancing figure (c/d), in other words not doing entry of accurual
Now, as far as i think method 1 is used in Real Practical life, in which we maintain two seperate accounts, because we are also supposed to reverse entries at begining of period..and if we use a single account (not make seperate rent payable account) then i wonder how will we make the double entry (reversal entry) ?
So, kindly guide me which method do we actually use in Real Practical Life ? If we used method 2 in which we make a single account for expense and accrual, then how re we gonna do reversal entry then ?
Thanks for ur time.
Firstly (1) is more common in real life. Although these days most businesses use computers and it then becomes simply a question of typing in the amounts and then the computer sorts it out 🙂
If (2) is used, then there is no need for a reversal entry because the balance is already on the expense account.
In the exam, you will not be required to produce t-accounts anyway 🙂
Out of two, first method is used in real life, m asking this cz i have prepared myself for first method only. Right ?
Now if we re supposed to make financial statements and we get a accrual adjustement, we make this entry
Dr Rent Cr. Payable (Method 1)
we dont calculate Bal c/d ( Method 2) on the account
which means method 1 is used almost always in which we make double entry instead of method 2 in which we do not make entry of accrual, instead we just calculate balance on account .
So on this bases, i guess we can say that method 1 in which we make double entry is used everywhere almost, Right ? than the second one in which we just calculate balance on account .
Method 1 is more common simply because in practice there will be lots of accruals needed for different expenses. We only show the one total of all the accrual on the Statement of financial position and so it is more convenient just to have the one account for accruals.
However there are no rules – it doesn’t matter how you do it.
And again, you cannot be asked for the t-accounts in the exam.
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