Forums › ACCA Forums › ACCA FA Financial Accounting Forums › Accrued Expenses (Kaplan p438, Q30)
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- February 15, 2014 at 3:38 pm #158903
Cant figure out how the income statement charge is calculated on this one. Trying to imagine how it can be go. Even looking at the solution cant understand. I’d love to be able to draw a t-account but I’ll explain as best I can.
At 31 December Tony has accrued 240$ in respect of light and heat for the quarter ending 31 December 2003. In Janurary 2004 he dicovered that he under accrued by 10$.
The bills for the next four quarter were as follows: (q.e. = quarter ended?
Amount 260 Q.E. 31Marc2004 Paid 15 April 2004
Amount 220 Q.E. 30June2004 Paid 17 July 2004
Amount 210 Q.E. 30Sept2004 Paid 14Octr2004
Amount 230 Q.E. 31Decb2004 Paid 19Jany2005Tony always accrues for expenses based on the last bill.
What is the charge to the income statement in respect of light&heat for the 15month period ended 31March2005?
The answer according to the book is: 1,160.
I understand to subtract the 10$ for under accrual and use 230 for the accrual heading into the next period. What i dont understand in the solution is why they have the opening accrual of 240$ on both sides of the T-Account?
The debit sides reads: 250(240+10)+260+220+210+230+230(c/f). The credit side 240(b/f). I am really struggling to see why this was done?
Anyone have any idea? Many thanks.
February 16, 2014 at 5:03 pm #159003Hi
Charges to the income statement:-
Q/E 31.3.05 = 230 (based on last qtr bill 31.12.04)
Q/E 31.12.04 = 230
Q/E 30.9.04 = 210
Q/E 30.6.04 = 220
Q/E 31.3.04 = 260 + 10Add the $10 underaccrued from 31.12.03 as it will be an increase in the charge to the income statement in 2004. The payment takes place in 2004 and is $10 greater than the accrual so hits the income statement.
If this is still unclear let me know and I will give you the T account entries.
February 17, 2014 at 7:54 pm #159154Hi Pippa. I understand it now and see my mistake. A bill is a bill. I was thinking to try and calculate how much was paid. Not what was the expense for the period. Thanks fr helping me realize.
HOwever, what i thought I understood about the accrual of 10$ I dont. In gathering the figure for the income statments-the bills. How does the 10$ can the amount of the bill quantity. If it belongs to another period shouldnt it be matched to that? Or shouldnt the question say that the bill was under-charged by 10$???
Thanks for your help!!
February 17, 2014 at 8:49 pm #159162Hi Tom
I’ve replied to you in a separate thread as I just couldn’t get the REPLY button to show. Now it does! Typical!
Pippa
December 1, 2015 at 6:54 am #286619For the above question i could not understand why the debit side is 240 +10 and how is the profit or loss A/C in credit side is 1160
Can anybody explainThank u
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