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The following transactions relate to Rashid’s electricity expense ledger account for the year ended 30 June 20X9:
Prepayment brought forward 550
Cash paid 5,400
Accrual carried forward 650
What amount should be charged to the statement of profit or loss in the year ended 30 June 20X9 for
electricity?
A $6,600
B $5,400
C $5,500
D $5,300The answer is :
Balance b/f 550
Expense incurred (cash) 5,400
Accrual c/f 650
6,600
I don’t understand why we added prepayment
Thanks in advanceThe prepayment at the end of last year (brought forward this year) is the amount that was paid in advance last year for electricity used this year.
Have you watched my free lectures on prepayments and accruals? The lectures are a complete free course for Paper FA and cover everything needed to be able to pass the exam well.
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