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Hello, I wanted to ask – If we set up accounts period end to be monthly.
For Accruals
In Month 1- we Accrue £500
In Month 2 What happens if the £500 Accrual, was actually we got billed :
A) £100 Too High
or B) £100 Too Low?Technically as we do accounts MONTLY we cant do anything right? since we cant go back and change our accounts?
Whats the Logic AFTER for M2, I would be thankful if you can walk me through it and explain the later implifications/consequences.
Thank You very much!!! 😀
I cover this problem in my free lecture on accruals and prepayments.
All you do is record the actual payment, and make whatever accrual is necessary at the end of the month.
The ‘missing’ figure is the expense for the Statement of profit or loss, and will automatically be $100 higher or lower that it really should be. This will effectively correct the under or over expense in the previous month.
I need help with the following problem found on page 34. Question 5:
Details of a company’s insurance policy are shown below:
Premium for year ended 31 March 2008 paid April 2007. $25,920
Premium for year ending 31 March 2009 paid April 2008. $28,800 what figures should be included in the company’s financial statements for the year ended 30 JUNE 2008I see how the prepayment is arrived at but the Profit & Loss is unclear given the different months of March, April and June.
ThanksFor the Statement of profit or loss, we want the expense for the period from 1 July 2007 to 30 June 2008.
The period from 1 July 2007 to 31 March 2008 is part of the first bill. The premium was for 12 months – we want 1 July to 31 March which is 9 months, so for that period is 9/12 x 25920 = $19440.
The period from 1 April 2008 to 30 June 2008 is part of the second bill. Again the premium is for 12 months – we want April to June which is 3 months, so fair that period it is 3/12 x 28,800 = $7,200.
So the total expense is 19,440 + 7,200 = $26,640
Dear John,
Please explain
On 1 may 2012 jonh paid a rent bill of 1800 for the period till 30 april 2011. What is the expense in the statement of profit or loss and entry in STOFPGabriell – have you watched my free lecture on Accruals and prepayments?
I ask, because if you have then you really should not have had a problem with this.However, it is not possible for me to answer because you have not given enough information. Without knowing what year end the business has it is not possible to calculate the figures!
(The proportion for the year in question is the expense in the years Statement of profit or loss. The remaining proportion will appear as a prepayment in the Statement of financial position.)
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