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Leddley owns two properties which it rents to tenants. In the year ended 31 December 20×6, it received $280,000 in respect of property 1 and $160,000 in respect of property 2. Balances on the prepaid and accrued income accounts were as follows.
31 December 20×6 31 December 20×5
Property 1 13,400 Dr 12,300 Cr
Property 2 6,700 Cr 5,400 Dr
What amount should be credited to the statement of profit or loss for the year ended 31 december 20×6 in respect of rental income?
Answer : $453,600
* I don’t understand how to get that answer, can someone help me please. The Dr Cr next to amounts is confusing *
The Dr’s represent money owed to Leddley by the tenants because they have not paid enough. The Cr’s represent money owed by Leddley to the tenants because they have overpaid.
During the year they received cash of $440,000.
At the start of the year, $12,300 had been overpaid by Property 1 last year. So this is income for this year and needs adding.
Also, $5,400 was owing by Property 2 at the end of the last year. The cash will have been received this year (and so is included in the total received), but is last years income and so needs subtracting.At the end of the year, $13,400 was owing from Property 1. This is income for this year and so needs adding.
Also, $6,700 was had been overpaid by Property 2. This is not this years income and so needs subtracting.Therefore the total income for this year is 440,000 + 12,300 – 5,400 + 13,400 – 6,700 = $453,600
Hi John,
I just wanted to say thank you for answering this question in such depth. I can’t tell you how long I’ve been trying to understand it, looking at your notes online, videos, then other videos and…. Nothing. Couldn’t get it.
It bizarre as I understand the accrued exp and prepaid expenses just fine. But the income aspect has me completely baffled.
I can at least now try and apply your method onto other questions, fingers crossed I can, otherwise I’m sure you’ll see a question pop up in the forum.
Much appreciated
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