Double Entry

Owing to the company at 31/12/20x5 is 12,000 (loan principal) + 240 (interest) + 9,000 x 8/12 (insurance prepaid) + 4,000 (rent) = 22,240.

Why caSh not deducted sir?

What cash? If you mean the 12000 loan paid out 1 January, you have no idea what cash balance is there at 31/12.

Hi, I am confused. Can someone explain to me why it is not $9000 * 4/12 (Sep - Dec 20x5) = $3000 since it was paid covering the year ended 31 Aug 2006?

We want the proper costs for the year to 31/12/X5 (P & L Ac) and the amount prepaid at 31/12/X5 (for the SOFP) 9000 paid X5 for the year to 31/8/X6: P&L: Sept, Oct, Nov, Dec = 4/12 x 9000 = 3000 SOFP: The other eight months' worth is a prepayment, so 8/12 of 9,000 = 6000 is an asset at year end.

We paid 12,000 annual rent from oct 2016 to September 2017. The prepaid rent as at year end 2016 is ? a. 9,000 b. 3,000 c. 12,000 d. 6,000

Of the rent payment of 12,000 for Oct 2016 until September 2017, three months' worth must relate to Oct, Nov and Dec 2016. As at 31/12 2016, the other nine months' worth relates to the next year ie year ended 31/12/2017 and is a prepayment as at 31/12/2016. The prepayment is therefore 12,000 x 9/12 = 9000.

i dont get it, why not reduce premium(9000-6000), bucasue it spent in 20x5.

You are asked for the prepayment as at 31/12/X6. You were not asked for the expense that should be charged for 19X6. At 31/12/X6, $9000 of rent payments relate to 19X7, so this is the prepayment.

Gulzar received goods which cost $250 from Baz on credit terms and Gulzar subsequently paid by cheque. Gulzar then discovered that the goods were faulty and cancelled the cheque before it was recorded and cashed by Baz. What accounting entries should Gulzar use to record the cancellation of the cheque the accounting records? The answer given is: Dr Accounts Payable, Cr Return Outwards. My answer is: Dr Bank, Cr Account Payable My question is why we don't debit the bank back since the question asks about cancelling the cheque. The question also didn't mention returning the goods or receiving a credit note, so we're not supposed to record the return outward yet, right?

When receipt of the invoice was recorded the entry would have been, Dr Purchases, Cr Accounts payable. If the goods were returned immediately the next entry would be Dr Accounts payable Cr Returns outwards. However, a cheque was issued before the goods were returned, so Dr Accounts Payable Cr Bank. When the cheque is cancelled and the goods returned, the entry should be Dr Bank, Cr Returns outward. I think the model answer is incorrect. I think it's OK to Dr Accounts payable before the credit note is received. That would stop the amount being inadvertently paid.

Alright, thank you !

You are welcome,