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Morning sir,
May I ask you a question about accruals and prepayments. Since I am not sure whether my bpp is the same as yours, I will just type the question here. Thanks for reading through!
The year end of M Co is 30 Nov. 20×0. The company pays for its gas by a standing order of $600 per month. On 1 Dec. 20w9, the statement from gas supplier showed that it has overpaid by $200. M Co received the bills for the four quarters commencing on1 Dec 20w9 and ending on 30 Nov 20×0 for 1300, 1400, 2100 and 2000. And ask for the correct charge for gas in M’s sopl ended 30 Nov. 20×0.
The correct answer is 6800. I do get this by simply adding those four bills together but not sure what the overpaid should be adjusted.
Many thanks for your reply!
The total expense for the 12 months to 30 Nov 20X0 is the total of the four bills, which is 6,800.
Although it is not asked for in the question as you have typed it, they have paid cash during the year of 7,200 (12 x 600) and had a prepayment at the start of the year of 200.
Therefore at the end of the year there is a prepayment of 200 + 7,200 – 6,800 = 600, but this will appear on the SOFP and does not affect the expense for the year in the SOPL.
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