Accruals/prepayments!!!!!!!!
TRO44ER1
Registered Posts: 16 New contributor 🐸
:001_wub: Hi all,
does any one have a quick and easy way of working out Accruals and Prepayments? Also a good way of how to work out the Mark up of something and the Margin.
Richard TRO44ER1:thumbup:
does any one have a quick and easy way of working out Accruals and Prepayments? Also a good way of how to work out the Mark up of something and the Margin.
Richard TRO44ER1:thumbup:
0
Comments
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Yeah - Learn it and remember it. Very quick and easy.
It's only a few things to remember so a long-winded anagram or acronym is pointless for such a simple exercise.
PREPAYMENT (expense) - as it sounds. We have PAID for something in advance. Under the rules of SSAP9 we must account for expenses, sales and purchases etc for the accounting period to which they relate and not when the money was paid or received. So a rent payment of £300 for Oct - Dec (3 months) would have been a CREDIT entry in the BANK and a DEBIT in Rent Expense account. That's straight forward yeah? BUT...........
If our accounting period ends on 31st Oct, it is clear that we have paid rent for 2 months that is covered by next years set of accounts so under SSAP9, £200 MUST be removed.
To take money OUT of an expense account we obviously CREDIT it. Therefore the DEBIT must be to PREPAYMENTS
Rent Account - Cr 200
Prepayment - Dr 200
Accruals are the same but in reverse. An accrual is money we owe - here's an example.
Our accounting period ends Oct 31st but, on Nov 15th, we receive a reminder in the post of an outstanding debt of £400 for a car repair that was done on 20th September (within the accounting period we are dealing with). This is an ACCRUAL. We MUST add this expense to Motor Expense account so the total motor expense for the year can be accurately calculated.
Motor Expense Acc. Dr 400
Accruals Cr 400
Two final things to remember.
PREPAYMENTS are classed as as CURRENT ASSETS (Balance Sheet) because we have paid for an expense in advance and we are OWED something (whether it is a room we are renting or gas to cook with)
ACCRUALS are treated as a CURRENT LIABILITY (Balance Sheet) because we owe for something we have had during the current accounting period.
There can be further complications if PREPAYMENTS and ACCRUALS are to do with INCOME.
Another day for that one.
Hope this has helped1 -
Wow hope you dont mind ive just printed that out :001_smile:0
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Course I don't mind.
Glad to have helped.
Just for the record while I'm on a roll...
An INCOME PREPAYMENT is money we receive in advance for a service/product we supply - an example being RENT RECEIVED (as if we were a landlord).
Imagine our tenant pays us £1200 rent in advance for a 3 month period (Oct - Dec) and our year end is Oct 31st. 1200/3 = £400 per month, so our tenant has PREPAID 800 (Nov and Dec for next accounting period). With an INCOME prepayment, it is the 'service' we owe to him, ie his living accomodation for 2 months. So that makes an INCOME PREPAYMENT a DEBT albeit in a strange way.
An INCOME ACCRUAL is money owed to us. So getting back to our tenant, if we sent him a bill for rent due for the month of Oct, that would be £400 he owed us, which is an ASSET (as he is a debtor)
To recap.
Prepaid expenses are monies we have paid in advance - Asset
Accrued expenses are monies we owe - Liability
Prepaid INCOME - Liability (because someone has paid US in advance and we owe the service)
Accrued INCOME - Asset (because someone owes US money)
Read through the definitions and get the scenario in your head and try to apply it to real life. It may help you to understand the entries
Finally the entries.
Prepaid Income
Rent Income (or any Income account) - Dr
Prepaid Income account - Cr
Accrued Income
Accrued Income account - Dr
Rent Income Account (or any income account) - Cr
One important thing to remember - You must have separate Prepayment accounts for income and expenses. The same goes for Accuals
EG:
Prepayments (Income)
Prepayments (Expense)
Accruals (Income)
Accruals (Expense)
Hope this helps
Good luck.0 -
Thanks for that. It was more than helpful.. Do you know of a good way to do mark up and margin??
Richard TRO44ER10 -
Mark ups and margin are another topic that takes some getting used to but I've attached a Word document that was posted here by visha (I think)
Hope you find it useful.0 -
Great !!!!!!!!!!!!!!!!!
:thumbup:
Many thanks for that attachment, I have looked at it and it's far better explained than in the book.
Do you have anything like that on part exchange/disposals of fixed assets?
Richard TRO44ER1:001_tt2::001_tt2:0 -
No I don't but again it's fairly simple in a few steps.
When you see a 'Disposal' the first thing to do is quite obviously DISPOSE of the asset so step one is
DISPOSALS - DEBIT
ASSET A/C - CREDIT
That gets rids of the original cost price of the asset from the accounts (forget any dep'n for now)
Step 2
We have to deal with any dep'n so this is done like this
ACCUMULATED DEP'N - DEBIT
DISPOSALS - CREDIT
NOTE: It is very likely that when dealing with a disposal you will have to calculate just how much total accumulated dep'n there is on the asset you are disposing of. EG. You may have £3200 in the Acc Dep'n Acc and obviously not all of that is for the one asset you are disposing so a calulation is necessary.
You may be told that the company policy for dep'n is 25% per annum on straight line basis so and an asset valued at 2000 (original cost) would have 1500 TOTAL dep'n for 3 years so this is the figure you will have to enter in step 2 would be £1500
Step 3
Any proceeds from the sale would be like this.
BANK - DEBIT (with how much someone gave you for it)
DISPOSALS - CREDIT
NOTE - If the asset is simply scrapped and there are no proceeds (ie nobody bought it) then there is just no entry for step 3.
So in our example, the asset cost 2000 and there was 1500 total dep'n - so obviously it had a NBV of £500. Let's imagine we got £450 for it - a simple calculation would suggest that we actually LOST £50 on the deal. The entries in the Disposal account would confirm this when you balance it off. Try it!
If we got £650 for our asset, another simple calculation would lead us to a £150 PROFIT. Entries in Disposal A/C would be like this.
Debit - 2000 (the cost price of the asset)
Debit - 150 (the profit) Balancing figure posted to P&L account
Credit - 1500 (total accumulated dep'n)
Credit - 650 (proceeds from the sale)
As far as your request, that is it!
A disposal. End of story.
Other scenarios could be the purchase of a new asset with the old one as a part exchange but let's leave it there for now.
Good luck - Do you have an exam in Dec??0 -
Great explainations
:thumbup::thumbup:
I sat the FRA in June, think i did ok. Just in case I need to resit it, it's nice to gain a new way of answering questions. But youre explainations have been brilliant. I wish I could answer questions in that detail!!!!! Though it have giving me inspiration.
You obvisouly know your stuff. Do you work with bookeeping all the time?
TRO44ER1
Richard :001_tt2::001_tt2:0 -
No - I have never worked as a bookkeeper or even in an office.
I certainly don't know it all but I did study really hard in the two months run up to the exam. I did all of the past papers and did several assignments. Repetition is the absolute key to learning methods for various problems such as Disposals, Prepayments, Reconciliations etc etc...If you do it enough times it becomes second nature and with complete understanding comes the confidence to describe it accurately - step by step. I'm just the same if I'm giving directions - I will give every tiny detail so the people following the instructions know that they are on the right track each step of the way.
I am a professional entertainer who tried to change his career. I've just taken final part of level 3 in June and, according to visha's answer sheet, I didn't get a question wrong. Following a few failed interviews I feel that at 44, I'm too old to be a 'junior' and I have no experience to get a job within an accounts role so I'm packing it in. I had intended to do level four but it's pointless unless I'm working in an accounts environment. Back to the entertaining for a few years - but I'm starting a Reflexology course in September.
I'll continue to stick my nose in here in case I can help anyone.
I assume you have seen visha's answers for June's FRA?
I'm sure you'll be fine with June's exam.
Regards.
Kevin0 -
I'm 29 and a full time postman I have been a postman for 10 years looking to become a junior this year. I have had two interviews but came second. I have funded my AAT and have done the tech level this year. I am just waiting for my break!!!!!!!!
I looked at Vishas answers and it seems to be ok. Fingers crossed!!!
Shame about you not being able to get into accountancy. Have you tried recruitment centres?
Best of luck with your reflexology course one of my customers did that as they changed careers they seem quite happy.
I just want to change careers into accountancy it'll happen.
Richard0 -
Hi Guys
The best way to crack into the accountancy profession is let the employment bureau do the hard work for you.
There is some thing for you (getting a job in accountancy bureau) and there is some thing for them.
Only register with them for temp. contracts. That way not only will you get experience in Sales ledger but also in purchase ledger, general ledger, payroll and the choice is vast.
The only thing you MUST demonstrate you enthusiasm, passion and willing to be flexible for the job, when you attend your interview. Don't be placid. Show your eagerness, fire, "will do anything to get the job"......
There are plenty of accounting jobs out there.
I would recommend Robert Half International. I invite them to come and advise my students, every year, on how to get jobs in the market. The above advise is from them.
My student’s age vary from 18 to 54 and they all manage to get jobs in an accounting environment. It is surprising, isn't it!
You may have to compromise with your current pay to what you might get. But that’s for first few months. I am sure you sound like that you can demonstrate your maturity and experience of life and work. This will push your pay higher.
Initially expect pay of £5.52 to £6.10 per hour and rising to £8 to £10 depending on your experience.
Now is the right time to contact the employment bureaus, as the holiday season is rife.
Visha0 -
It's a nice thought visha but may only be applicable for the mainland. I'm on the Isle of Wight and there is very little. One agency would not even give me an interview to go on their books because I was not experienced in anything!
The other two I am registered with just don't have anything to offer and even when there is a job I could do, I never get a call but just see it advertised in the local paper.
I'm sure if I lived anywhere else but here things would be different. I did try a job for one day with another agency but that was a typical agency job - going in to clean up someone's mess and I just simply didn't have the relevant experience to tackle the job. It seems that most places want SAGE experience as few places actually use double entry.
I am now considering doing an 'Accounting for Small Businesses' course which starts in September. Technically, I must be half way there for that, but I wil learn a few more things like tax and VAT returns. Then I coud do some basic bookkeeping for private customers.
Things may change over the coming year but I'm set on reflexology for now.
Thanks for your comments.
Regards.0 -
Hi Guys
The best way to crack into the accountancy profession is let the employment bureau do the hard work for you.
There is some thing for you (getting a job in accountancy bureau) and there is some thing for them.
Only register with them for temp. contracts. That way not only will you get experience in Sales ledger but also in purchase ledger, general ledger, payroll and the choice is vast.
The only thing you MUST demonstrate you enthusiasm, passion and willing to be flexible for the job, when you attend your interview. Don't be placid. Show your eagerness, fire, "will do anything to get the job"......
There are plenty of accounting jobs out there.
I would recommend Robert Half International. I invite them to come and advise my students, every year, on how to get jobs in the market. The above advise is from them.
My student’s age vary from 18 to 54 and they all manage to get jobs in an accounting environment. It is surprising, isn't it!
You may have to compromise with your current pay to what you might get. But that’s for first few months. I am sure you sound like that you can demonstrate your maturity and experience of life and work. This will push your pay higher.
Initially expect pay of £5.52 to £6.10 per hour and rising to £8 to £10 depending on your experience.
Now is the right time to contact the employment bureaus, as the holiday season is rife.
Visha
Visha - i have to say reading your comments have put a smile to my face. :001_tongue:I am 46 nearly 47 and do not work in an accounting environment. I want to leave my current employers and work for my relative doing their book keeping. Having heard alot about people not being able to get into accounting for various reasons of having no qualifications, i did descide that if i left my job and things did not work out with my relative, i would go to agencies and register as a temp for book keeping etc. I feel very much inspired by your comments and i will definetly keep on board the name of RHI.0 -
Hi, Visha. Many thanks for those comments. I'am determined in my search for the suitable job. I have joined a new recruitment centre and they seem quite pleased with what i've done myself. It's just a case of waiting for the foot in the door, watch this space!!!!!!
TRO44ER1
RICHARD0 -
let me check if it is right
£1200 rent for 3 months (oct, nov, dec 1999)
Accrual
Financial year Sep 30th (or 1st?) 1999 to 30th october 2000
Credit side of £400 Accrual
Debit in Expense (been paid?)
Prepayment
Financial year Sept 20th 2000 to 30th October 2001, right year?
Debit £800 cos been paid already
Credit £800 remove it
so both balance now £1200?
is that right what i am doing?
thanks0 -
i too am goin to print this off as they are brilliant explanations....ive just started the intermediate this week so have not done this part yet but when it comes i shall be ready!!!
i am also thinkin of signing on the agencies as i have no experience but have also applied for quite a few jobs as a trainee, and i didnt think about just takin the temp contract so that advice is very useful too.
well im off to college now to do profit and loss....have a great day every one
:thumbup1:0 -
Thanks numberjunky all that stuff is great, and i too have copied it. Very consise, very clear well done.0
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