Previous June 06 Intermediate Exam

System

Can anyone explain to me how the the credit balance of £4800 for rent for the year is reached which is Task 1.1 of June 06 exam.

Also, how is the credit balance reached for the selling expenses for year of £2450. This one is Task 1.2 of the June 06 exam.

I seem to be struggling to get to grips with accruals and prepayments - if anyone has some tips I would be grateful for their advice.

Many Thanks

System

Re:Previous June 06 Intermediate Exam

the rent paid is £4900

However, what has happened is that the rent paid of £4900 includes an extra 3 months from 31st march to 30th June amounting to £1200 and an opening Prepayment balance of £1100.

By doing a Rent T Account we debit £1100 debit the bank payments of £4900. The Closing prepayment is £1200 and therefore Credit the Closing Balance of Prepayment.

The Missing figure in the Rent T Account is £4800 on the Credit Side of the Rent T Account charged to the P&L. So double entry would be credit Rent £4800 and Debit Profit & Loss £4800.

The Selling Expenses is the same

we credit the opening balance of £205 in the Selling Expenses T Account, we debit the bank payments in the Selling Expenses T Accouunt of £2395

The Closing Balance of £390 is an Accrual from 30th April - 31st July( 3 Months acrrual) However we only need to Account for a 2 Months Accrual which is 2/3*390= which leaves the Closing Balance of £260.

Therefore we debit the Closing Balance of £260 in the Selling Expenses T Account.

Therefore the missing figure in the Selling Expenses T Account is credit £2450 and Debit Profit & Loss £2450.