Prepayments & Accruals

System
System Posts: 100,534 🤖 Admin 🤖
edited 10:32AM in AAT student discussion
Just Seeing If I'm Right In Doing This...

Prepayments...
- DR Prepayments
- CR Expense Account

Accruals...
- DR Expense Account
- CR Accrual (Taken To P+L)

I Know One Of Them Is Wrong I Just Can't Tell I Think Its The Prepayment One...

Comments

  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Prepayments & Accruals

    No they're both right! Apart from the fact that prepayments and accruals are both balance sheet items.

    Annette
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Prepayments & Accruals

    Thanks, Thats cool!

    Obviously! Such an idiot, they both carry on to the next year, therefore BS items!
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Prepayments & Accruals

    Prepayments are an asset, accruals are a liability.

    The other side to the entries would go to the P&L a/c.

    Scott.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Prepayments & Accruals

    hey there

    I am having problems with questions from JUne 2006 FRA - section one task 1.1 and 1.2
    I know the concept of adjusting accruals and prepaymenst but in this question I do not get it!!! can anyone help?

    Why the final chrge to P&L is to be 4800... when I was doing that I was sure it will be 5100.....please help as soon as possible!

    Thanks
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Prepayments & Accruals

    Task 1.1

    Prepayment in list of balances is rent - £1,100.
    Rent on bank summary (£4,900) includes £1,200 for Q/E 30.06.06.

    Q: Prepare the rent a/c for y/e 31.06.06.

    First you need to bring forward the balance from last year, which is the £1,200 prepayment (DR side).

    Now record the rent expenses paid (4,900).

    Balance the DR side = £6,000.

    £1,200 of £4,900 relates to the next period, so you know this will be a prepayment to carry forward - record this in the CR side.

    This prepayment is c/f to the next period so deduct £1,200 from £6,000 to give you £4,800 rent for the year.

    Your T account should look something like this (sorry about the layout):

    DR side

    Balance b/f £1,100
    Rent paid £4,900
    TOTAL £6,000

    CR side

    Rent for year £4,800
    Balance c/f £1,200
    TOTAL £6,000

    Task 1.2

    Accrual in balances is selling expenses (£205).
    During May 06, £390 paid for selling expenses relating to Apr 06 - assume accrued evenly over that quarter.

    Q: Prepare selling expenses a/c for y/e 31.03.06.

    First, bring forward the balance - which is the accrual of £205 (CR side).

    Now enter the amount of selling expenses paid through the bank (£2,395 from list of balances) - DR side.

    You know that £390 paid in May relates to period end 30.04.06 (Feb, Mar & Apr) and it is 30.03.06, so you need to accrue two thirds in this period - £390/3 = 130. 130 * 2 = 260.

    Enter an accrual of £260 on the DR side, which is your balance to c/f.

    Balance the DR side = £2,655, giving you the total expenses for this period.

    Now deduct the brought forward accrual of £205 from total expenses £2655 to give you £2450 for the year.

    DR side

    Bank £2,395
    Balance c/f £260
    TOTAL £2,655

    CR side

    Balance b/f £205
    Expenses for year £2450
    TOTAL £2655


    Hope that helps! :lol:

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