prepayments

The accounting year runs from 1 Feb to 31 Jan. For the period from 1 Feb to 30 Jun (5 months) they are paying at the rate of 24000 a year. For the period from 1 Jul to 31 Jan (7 months) they are paying at the rate of 30000 a year. So the total expense for the year is (5/12 x24000) + (7/12 x30000). Because they are paying in advance, the last payment made before the end of the year (31 Jan) will have been on 1 Jan. This payment will have been for Jan, Feb, and March. this means that they will have prepaid for Feb and Mar - 2 months at the rate of 30000 per year. 2/12 x 30000.

thank you very much John: my problem was figuring out the accounting yr. I thought it was Jan.to Dec. So my answer was 27000 & 5000 thanks for ur help as per usual

You are welcome :-)

Hi can you plz explain what they did in question 6 of accruals and prepayments test?? I did not get it... Thanks alott

During the year we received cash of 2003040. However some of that was the money we were owed from last year (11520) and this is not this years income, so it needs to be taken out. However at the end of last year we had already received 323,040 in advance - so that is income of this year and so needs adding on. At the end of this year, we are owed 20,880 for this year and so this needs adding on. Finally, at the end of this year we had received 345,560 in advance - so it is in the cash received, but is not this years income Therefore this needs removing. As a result, the actual income this year is 2003040 - 11520 + 323040 + 20880 - 345560.

Thank u so much!

You are welcome :-)