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Hi Sir,
A little confused about this:
A company sublets part of its office accommodation. In the year ended 30 June 20X5 cash received from tenants was $83700.
Details of rents in arrears and in advance at the beginning and end of the year were:
30 June 20X4: 3800 in arrears, 2400 in advance
30 June 20X5: 4700 in arrears, 3000 in advance.What figure for rental income should be included in the company’s SOPL for the year ended 30 June 20X5?
(Answer is 84,000)1) One way I have answered it is by doing:
cash given + change in income in arrears – change payments in advance.
But I am not so sure about why this would be the case. Could you please explain further the logic?
2) And the second way is through doing a t account of the Rent received account. I understand that the opening balance for the payment in advance is a credit and in arrears is a debit, but I am a little confused as to why the closing balances are opposite entries.
Thanks,
YazanGenerally, it is just the logic that is muddling me.
The cash received is 83,700.
However this will include rent in arrears at the end of last year (3,800) and so this needs subtracting.
In addition there was rent in advance at the end of last year (2,400) – we got the cash last year, but it is this years income, so this needs adding.At the end of this year, we are still owed rent in arrears (4,700) – we have not had the cash but it is this years income and so it needs adding.
Finally, at the end of this year we had received rent in advance (3,000) – it is included in the cash received this year, but it is not this years income. So this needs subtracting.With regard to the t/accounts, the closing balances are not opposite entries – we end up with a credit balance of 3,000 (the amount received in advance) and a debit balance of 4,700 (the amount in arrears).
What may be confusing you is the way we close off accounts properly – by transferring the balance from the opposite side.
If that is a problem then it might help you to watch my free lecture on double entry – I go through the ‘proper’ way of closing off accounts.Great, that makes sense.
I was getting confused by the fact that were two closing and opening balances in one t-account.
Many thanks, once more!
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