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Accruals and prepayments

Forums › FIA Forums › FA1 Recording Financial Transactions Forums › Accruals and prepayments

  • This topic has 1 reply, 2 voices, and was last updated 1 year ago by John Moffat.
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  • Author
    Posts
  • October 3, 2022 at 12:53 am #667748
    cbollers
    Member
    • Topics: 1
    • Replies: 0
    • ☆

    Accruals & Prepayments
    Masha and the Bear Inc. had several expenses during 2018. Some of them were the below:
    Expense Account US$
    Electricity 6,500
    Water 1,700
    Salaries 180,000
    It is now 15 February, and the accountant has to make some final entries before the
    financial records of 2018 are closed. She noted the below:
    1. The audit of 2018 will start in the beginning of March. For the past two years the
    audit fee has been the same and it is expected to be the same for 2018 also. This has
    amounted to $5,000.
    2. Electricity paid in 2018 did not include December 2018 (it was paid in January 2019)
    and the portion for this month was $500.
    3. The water expense paid in January 2019 included also December 2018 which
    amounted to $300.
    4. During the Christmas holidays, an employee requested an advance against his salary,
    i.e. to receive half of January 2019 salary in December. This amount was $1,500.
    Required:
    a. Explain what are accruals and give an example. (5 marks)
    b. Explain what are prepayments and give an example. (5 marks)
    c. Prepare the below accounts (taking also into account the notes) for 2018
    indicating the amounts that should be reported in the Profit and Loss account, and
    Balance Sheet Account at the end of the year. You are required to present also
    extracts of the Profit and Loss account, and Balance Sheet Account for 2018.
    ? Electricity
    ? Water
    ? Salaries
    ? Audit Fees

    October 3, 2022 at 7:58 am #667777
    John Moffat
    Keymaster
    • Topics: 56
    • Replies: 53175
    • ☆☆☆☆☆

    We do not provide full answers to full questions.

    You must have an answer in the same book in which you found the question, so ask about whatever it is in the answer that you are not clear about and then I will explain.

    Everything needed to be able to answer this question is explained in my free lectures (although obviously you can not be asked a question in this format in the Paper FA exam).

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