Calculating Acruals

System

For some reason i cant calculate Acruals!!!

Could anyone give me an example (prepayment & Acruals ??

Or if they can explain the below to me:-

The last payment for heating and lighting was for £2640 which took account of all supplies received to 31st Oct 2002.

The year end is 30th Nov 02

I know the answear is £880 (2640 x 4/12)
But dont exactley understand how its 4 months!!!

Thanks

System

Re:Calculating Acruals

think of it logically.
the last quarterly bill for heating and light was £2640. this took into account the quarter up to then end of october. So if year end is November, u need to accrue for 1 months worth of heating and light which wont be billed until the end of january. So 1 3rd of the last bill is £880.00, hence the accrual. Its not 4 months!! its 1/3rd ie 4/12 = 1/3

System

Re:Calculating Acruals

Hay,Thanks

System

Re:Calculating Acruals

Accruals are calculated to make sure a whole year's worth of costs are included in the year and prepayments are calculated to do the same but by taking the following year's part out.

To calculate the accrual, you always look to see how much of the year has been charged so far. You then need to work out how much of the year is left. Next, you look at the last charge received - this could be an annual charge, six monthly or quarterly. If it is a large cost, it could even be monthly although usually a monthly charge is not big enough to worry about. With the latest charge, you break it down in to monthly amounts then multiply it by the number of months not yet charged. This is the amount you need to accrue.

Prepayments work in much the same way, except you are working out how much of the amount charged is for the following year and taking that amount out of this year's costs.

Hope this helps.