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B, a limited liability company, receives rent for subletting part of its office premises to a number of tenants.
In the year ended 31 December 20X4 B received cash of $318,600 from its tenants. Details of rent in advance and in arrears at the beginning and end of 20X4 are as follows:
Rent received in advance 31 Dec 2013 $24,600
Rent owing by tenants 31 Dec 2013 $16,900
Rent received in advance 31 Dec 2014 $28,400
Rent owing by tenants 31 Dec 2014 $18,300What figure for rental income should be included in the statement of profit or loss of B for 20X4?
The answer is D, $316,200.
I am wondering why the answer wouldn’t be 336,400? Would the entry for rent received in advance on 31 Dec 2014 of $28,400 not be debit cash, credit rental income account? Thanks.
Do not think of debits and credits (there is very little testing of debits and credits in the exam, because computers these days can do the debits and credit 🙂 )
The total cash received was 318,600. Included is 16,900 that was owing from last year which is not this years income – so that needs removing.
Not included is 24,600, that was received last year, but is this year income – so that needs adding.At the end of the year, there is 28,400 that has been received this year and so is included in the cash, but is not this years income – so that needs removing.
Finally, at the end of this year there is 18,300 that is still owed to us. It is this years income but is not in the cash received (because the still owe it to us) so that needs adding.
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