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A company receives rent for subletting part of its office block.
Rent, receivable quarterly in advance, is received as follows:
Date of receipt: 1st October 2008 for 3 months to 31st December 2008 7,500
28 December 2008 for 3 months to 31st March 2009 7,500
4th April 2009 for 3 months to 30th June 2009 9,000
1st July 2009 for 3 months to 30th September 2009 9,000
1st October 2009 for 3 months to 31st December 2009 9,000
What figures, based on these receipts, should appear in the company’s financial
statements for the year ended 30th November 2009?
SPL SOFP
A $34,000 Debit Prepayment (Dr) $3,000
B $34,500 Credit Accrual (Cr) $6,000
C $34,000 Credit Accrual (Cr) $3,000
D $34,000 Credit Prepayment (Dr) $3,000
Correct answer is C..but why 3000$ accrual(accrued income)?Accrual is the amount that relates to current accountimg period..but 3000$ relate to next period (December) In that case it cannot be accrual..To my mind correct answer has to be 3000$ Prepayment(Cr) (prepayment of income or deferred income)..
Tnanks in advanve 🙂They are receiving money and as at 30 November the tenant has paid them too much (they have paid for December).
Therefore there is prepaid income and as at 30 November they are owing 3,000 to the tenant. Therefore they need a credit balance for the amount owing. It doesn’t matter whether they call it prepaid income (which is more sensible) or accrual, because whatever they call it they owe money and therefore it is a credit balance.
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