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Sir, regarding this question,
The electricity account for the year ended 30 June 20X3 was as follows:
$
Opening balance for electricity accrued at 1 July 20X2 300
Payments made during the year:
1 August 20X2 for three months to 31 July 20X2 600
1 November 20X2 for three months to 31 October 20X2 720
1 February 20X3 for three months to 31 January 20X3 900
30 June 20X3 for three months to 30 April 20X3 840What was the expense charged to the statement of profit or loss for the year ended
30 June 20X3 and the accrual at 30 June 20X3?My doubt–
The 840 payment made on 30 June relates to next three months to 30 April ( ending on July 31) which means that for year ended 30 June, there is supposed to be a one month prepayment right? That would be 840 x 1/3 =280. Since the payment is made so how can there be a two months accrual because cash is already paid for the two months.
So profit loss charge – 3360- 300 – 280 = 2780
And accrual would be same as opening that is 300,I made T account like this
DR |. CR
Cash- 3060. |. Opening Accruals- 300
Closing Accruals- 300. |. P/L- 2780
|. Closing Prepayment- 280
=3360. |. = 3360The question says that the payment made on 30 June is for the 3 months to 30 April (i.e. February, March and April).
Therefore they have not paid for June or July and need to accrue for those 2 months.
Oh okay got it, but for accrual of those two months why we calculate with the 840 ammount.
Is it just for getting an estimate? Like we are assuming that 840 roughly would come for next 3 months ( may, June, July)Yes. As I explain in my free lectures, if there is no other information we have no choice other than to assume that the next invoice will be the same as the last one.
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