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Hi
Thanks for the lectures! I am confused, however, in the statement of financial position. You initially mentioned that expenses affects the profits.. Also, accruals are basically expenses, right?
So where does one indicate the expenses in the SOFP? is it under capital, as a factor that affects profit, or under non-current liabilities as accruals?
Accruals themselves are not expenses – they are amounts owing for expenses (which affects the total expense for the year).
Because they are amounts owing, they appear in the SOFP as current liabilities. They appear in the SOFP because they are amounts owing, the fact that they relate to expenses is not relevant.
for example if we have 10000 rent expense, 2000 of them were accrued. Should we show 10000 rent expense on our SOPL and show 2000 rent liability on SOFP or how?
thanks in advance
If 10,000 is the total rent for the year (the total of the amount actually paid plus the amount still owing (accrued)). Then yes – 10,000 is the expense in the SOPL, and 2,000 is the accrual on the SOFP.
I do suggest that you watch my free lectures on accruals and prepayments. The lectures are a complete free course for Paper F3 and cover everything needed to be able to pass the exam well.
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