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Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FA – FIA FFA › accruals and prepayments
on 1 jan 2019,we had prepaid insurance of 10,000.on 1 august we paid in full the annual insurance invoice of 36000 to cover following year.shouldn’t we charge 36000 to statement of profit or loss at 31 december?
No.
We charge the expense for the year to December, not the cash actually paid.
The expense for the year is 10,000 + (5/12 x 36,000) = 25,000
do you mean we are not going to consider the months april may june and july i didn’t mention anything about them shouldn’t we consider them as paid or accrued are we going to completely ignore them?
No. The prepayment must cover the period from January to July, otherwise they would have had to make the next payment sooner.
got it. thanks
You are welcome 🙂