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in ACCA- F3 book, it is written that when prepayment occurs, we record it as following:
DR – Prepayment
CR – Expence is it correct?for example , we pay rent of 1000 $ for the following year. we should record it :
Dr – Prepayment – 1000 $ Dr – Prepayment – 1000$
Cr – Expence – 1000$ OR Cr – Cash – 1000$
which entry is correct above? would you write here the correct entries with explanation please?Whenever you pay an expense the entry is debit expense and credit cash.
At the end of the year, if part or all of the payment is a prepayment, then the entry is to credit the expense and debit prepayments with the amount that is prepaid.
Have you watched my lecture on accruals and prepayments?
If not, then do because it is all explained in detail there.
You cannot expect me to repeat it all here.Is it a new thing to open a separate Prepayment T account and a separate Accruals T Account? I did accountancy before (AAT) and we always brought down the prepayment or the accrual (whatever the case may be) in the same account where it arose, e.g. insurance account, telephone account, etc. as a “Balance b/d”. Would I lose marks if I did it the way I learned previously?
Also is the title Statement of Profit or Loss and the title Statement of Financial Position new? I would have called them, not so long ago, Income Statement and Balance Sheet respectively. (Before that, years ago, it was Trading, Profit & Loss A/c and Balance Sheet). Again, will I lose marks if I stick to the way I had learned previously?
No – it is not a new thing. You can deal with prepayments anyway that you want – the way you learned it previously is fine. The only reason that it is ‘nicer’ to have a separate prepayments account is that, of course, there are likely to be prepayments for lots of different expenses. On the Statement of financial position we show just one total for all of them – we do not list each one separately.
The income statement is now called Statement of profit or loss.
The balance sheet is now called Statement of financial position.What you called them before is now wrong.
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