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Buster’s draft financial statements for the year to 31 October 20X5 report a loss of $1486. When he prepared the financial statements, Buster did not include an accrual of $1625 and a prepayment of $834.
What is Buster’s profit or loss for the year following the inclusion of the accrual and prepayment?The answer given in the textbook was $2277.
Hi Sir, I think Buster did not include a prepayment of $834 is correct. Because it is not their expense for the year to 31 October 20X5. So I think the answer is just: -1486 – 1625 = -3111
The answer in your book is correct.
The question is meaning that they had not accounted for the fact that there needs to be a prepayment and an accrual entered, so at the moment they will have entered neither but will simply have entered the total cash paid during the year.
Part of the cash paid will have been prepaid and is not an expense of this year.
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