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Good day Sir, kindly assist with this question:
The year end of M is 30.11.10. The company pays for its gas by a standing order of 600 p.m. On 1.12.09, the statement from the gas supplier showed M had overpaid by 200. M received gas bills for the 4 quarters commencing on 1.12.09 and ending 30.11.10 for 1300, 1400, 2100 and 2000 respectively.What is the correct charge for gas in M SPL for the year ended 30.09.10
Please do not simply set test questions here and expect an answer. You must have an answer in the same book in which you found the question, so you should ask which bit of the answer you are not clear about.
You should be using a Revision Kit from one of the ACCA approved publishers – they have lots of exam standard questions together with answers and explanations.The charge in the Statement of profit or loss will be the total cost of the gas used between 1 December 2009 and 30 November 2010 (regardless of what has actually been paid).
Assuming that you have copied the question correctly, then the total gas used during the year comes to 1,200 + 1,400 + 2,100 + 2,000.Have you watched my lectures? They are a complete free course for Paper F3 and cover everything needed to be able to pass the exam well.
Pardon me about that sir.
Okay, I’ve seen the videos. However, I don’t know why the question seems difficult to me. The answer in the revision kit sites two accounts: Gas account and Gas supplier account.
I understand the entries for the Gas account for M Inc. Cash/Payable is CR with the quarterly payments and a DR entry in the Gas account. The balance is transferred to P/L account which is the answer to the question.
But I don’t fully understand the entries in the Gas supplier account. I understand the CR entries ( Gas supplier Dr Cash/Recievables and CR its account with the income). But I don’t understand why the standing order charge of 600 per month and the prepaid income of 200 is a Dr entry in the supplier account.
Thank you
Firstly, there are very few questions in the exam testing debits and credits, and for most questions it is better and faster not to use t-accounts.
The reason the standing order is debited is because it the payment of cash, and when cash is paid we credit cash and debit the supplier.
The prepaid amount is not income – if they had overpaid at the start of the year then they are owed 200 by the gas supplier, so it is a receivable and therefore a debit balance.
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